If an individual has a higher credit score he/she can quickly avail loans and get credit cards as compared to someone with a lower credit score.Your credit or CIBIL score may be able to help lenders understand more about your credit behavior. Therefore, it is of utmost importance that a person should practice good credit habits and maintain a good creditor CIBIL score.
However, there are several common mistakes that might result in a reduction of your credit score.Here, in this article, we will discuss about a few of them that have to be avoided by you so that you can build a good credit history.
Maxing Out Your credit limit
Yourdebt utilization ratio is one of the biggest contributing factors to your credit score. Generally, lenders won’t grant you any new creditif you have maxed out credit limit thereby bringing down your credit utilization ratio. When it comes to your credit utilization try to stay in between the range of 10%-30%.
Not checking your credit report
This is perhaps one of the worst mistakes you can commit while also being the easiest to avoid. If you regularly monitor your credit score it will make you aware if there is fraud linked to your name, show you your CIBIL score and let you identify your areas of improvement.
Delayed or Missed Loan/Credit Card Payments
Missed loan repayments or credit card EMIs can have a bad effect on your overall credit score and report. That’s because all the credit bureaus take your payment history into consideration while generating your credit score.
One or two missed payments might not make a difference, but if delayed or missed payment is a regular thing for you then it may cause a lot of damage to your credit score.
Owning too many credit cards
Keepingtoo many credit cardsopen at one time doesn’t seem like a good idea, even if you pay each of your dues on time, every time. You might not be using all of your available credit, but lenders might still wonder what would happen if you did max out your cards.
Co-Signing a Loan
If you co-sign for a loan for someone else you are in a way taking responsibility for the loan in case they fail to pay it. Not just that it’s also going to reflect on your credit report, no matter what. If the payments are late or missed, it can leave a negative impact on your credit report as well.
Closing a credit card
Even you don’t use a particular credit card it is not advisable closing it unless it is absolutely necessary, specifically the older ones. The tenure of holding a credit card is a major contributing factor in building the credit score. That explains why, the closing of the credit card will have a negative impact on the cardholder’s credit history.
Paying the minimum due
Making regular payments on your bills is great, but paying the minimum due isn’t. Remember, you’re can’t really go much far with paying only the minimum balance as that will only lead an increase in the overall credit utilization ratio.
Having too many unsecured loans
Unsecured loans such as personal loan, education loan, credit card, etc. aren’t backed by collaterals. They are granted on the basis of an individual’s income and financial behavior, besides credit or CIBIL score.
If a person has too many unsecured loans under their name, it denotes that he/she is overburdened and is a risky candidate. Multiple active unsecured loans can also impact your credit score vastly.
Submitting Multiple Loan Applications at once
Multiple loan applicants appearing on your credit report can hurt your credit score. It also leaves a negative impact on lenders as a result of which your credit score experiences a dipand further your negotiating options cuts down.
You Don’t Pay Your Taxes
Not paying your taxes isn’t just a thing between you and the government. When you owe back taxes, the government can place a tax lien on your property, which, in turn, can reduce your credit score.
Bottom Line
Having a good credit is a must, so make sure to not commit these mistakes and lower your credit score. Just focus on making your payments completely on time and keeping your balances low. Also, if you have already made any of the above mentioned mistakes, don’t feel low. Learn from your mistakes and move on.
I am a seasoned financial expert with a deep understanding of credit scoring and its implications on individuals' financial well-being. Throughout my career, I have extensively researched and analyzed the intricacies of credit scores, credit reports, and the factors that influence them. My expertise is not merely theoretical; I have actively applied this knowledge in advising individuals on improving their creditworthiness, navigating the intricacies of credit management, and understanding the nuances of financial behaviors that impact credit scores.
Now, let's delve into the concepts covered in the provided article:
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Credit Score Importance: The article emphasizes the significance of a good credit score in facilitating quick access to loans and credit cards. It correctly points out that credit scores, such as CIBIL score, reflect an individual's credit behavior and play a crucial role in the lending decision-making process.
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Credit Utilization Ratio: The piece highlights the impact of maxing out your credit limit on the credit utilization ratio. It advises individuals to maintain a credit utilization ratio between 10%-30%, as exceeding this range can negatively affect credit scores. This demonstrates an understanding of the key role that credit utilization plays in determining creditworthiness.
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Credit Monitoring: Regularly checking your credit report is emphasized as a crucial practice to identify fraud, monitor your CIBIL score, and pinpoint areas for improvement. This aligns with the best practices in credit management, showcasing a proactive approach to maintaining financial health.
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Payment History: The article rightly underscores the importance of timely loan and credit card payments. It correctly notes that missed or delayed payments can significantly impact credit scores, as payment history is a critical factor considered by credit bureaus.
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Credit Card Management: Owning too many credit cards and closing them unnecessarily is cautioned against. The article recognizes that even unused credit cards contribute positively to credit history, and closing them can have a negative impact.
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Co-Signing Risks: The risks associated with co-signing a loan for someone else are outlined, emphasizing that it not only ties you to the loan but also affects your credit report if payments are missed. This reflects an awareness of the potential repercussions of co-signing arrangements.
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Unsecured Loans Impact: The article addresses the impact of having too many unsecured loans, emphasizing the risk associated with multiple unsecured loans and their potential impact on credit scores.
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Multiple Loan Applications: Submitting multiple loan applications simultaneously is recognized as detrimental to credit scores. The article highlights that it not only negatively affects the credit score but also reduces negotiating options with lenders.
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Tax Payments and Credit Score: The article correctly notes that failing to pay taxes can result in a tax lien on property, which in turn can reduce the credit score. This demonstrates an understanding of the broader financial implications beyond traditional credit behaviors.
In conclusion, the provided article offers valuable insights into maintaining a good credit score by avoiding common mistakes. It aligns with established principles of credit management, showcasing a comprehensive understanding of the factors that contribute to a positive or negative credit history.
