Bad Practices that Lead to Bad Credit Score and How to Fix That?

Your financial health is reflected in your credit score. Being able to get certain credit products, such as credit cards or loans, depends on having a decent credit score. A number of bad practices lead to a bad or poor credit score. Fixing your credit score is one of the major financial tasks that you need to perform in order to maintain a financially healthy life. 

A three digit numeric value is assigned to you by the credit bureaus based on your repayment history and way of managing debts. That number is called a credit score which is used by lenders and banks to determine your creditworthiness while assessing your credit profile for a loan or credit card. It plays a significant role in your financial life because of this. Your credit score is a key factor in figuring out whether you qualify for any type of credit. In actuality, you can save thousands on interest costs with a good credit score. A score of 750 or higher is regarded as good and can lead to quick approvals. 

Now that we have underlined the one of the many reasons to maintain a good credit score, let us look at the bad practices that lead to a bad credit score. 

Bad Practices Resulting in a Bad Credit Score

An irregular payment history, a high credit utilisation rate, applying for several credit card or loan applications in a short period of time, or mistakes in your credit report are all such bad practices that can lead to a bad credit score. Keep in mind that credit score is a dynamic aspect of your credit profile and constantly keeps changing as per your financial actions.

Listed below are a few bad practices that lead to a bad credit score: 

1. Irregular Payment History
   One of the most common bad practices that lead to a bad credit score is an irregular and unpredictable payment history. Your credit score will be affected if you have missed a credit card payment or loan repayment due. Your credit score is considered by the credit lending companies or banks to determine how trustworthy you are as a borrower. Therefore, be sure to make monthly payments are made on time and before the due date. If you have trouble remembering the due date and you miss the deadline, it is better to set up autopay. Therefore, on the due day, the money will be debited from your bank account without you having to remember and pay it.
2. Lack of Mix of Credit Products
   Make a well-balanced credit product portfolio that includes items like personal loans, credit cards, or vehicle loans. It shows you are creditworthy if you have a variety of credit mix in your account. It could not have a significant impact on your credit score. Not having a mix of credit products is one of the bad practices that lead to a bad credit score over time. This also works if you are attempting to improve your credit score, it's advised to have a healthy credit mixture. Always spend within your means of payback. Go for various credit products if you are confident in your ability to make the repayments on time; otherwise, your credit score will suffer.
3. High Credit Utilisation Ratio
   The amount of credit you use as a percentage of your entire credit limit is known as your credit utilisation ratio. The formula to determine your credit utilisation ratio is as follows:
   (Total Outstanding Amount on All Credit Cards/Total Available Credit Limit) X 100 = Credit Utilisation Ratio
   Having a credit utilisation of more than 30% is one of the bad practices that lead to a bad credit score. To improve a negative credit score, keep the credit utilisation percentage below or equal to 30%. A high credit usage ratio indicates a greater reliance on credit, which could mean that there are chances of you missing the payments. Make a monthly budget and make an effort to stand by it. By using a budget, you can prevent excessive spending. Cut down your credit utilisation to less than 30% if you want to see change in your credit score. 
4. Applying for Multiple Loans
   Multiple credit card or loan applications in a short period of time may cast doubt on your capacity to manage your money. This is a common bad practice that must be avoided as it may lead to a bad credit score. Do not apply for any credit products back-to-back if you wish to improve your credit score. Lenders and credit card companies may think that you are credit hungry and that is the reason you are desperately seeking out for external financial help. This may increase the risk associated with your profile while lending. Hence, avoid making multiple loan or credit card applications in a short period of time. 
5. Not Reviewing your Credit Report
   You can determine what factors are affecting your credit score by reviewing your credit report. Once you are aware of the bad practices that are leading to a bad credit score, you may develop a strategy to improve your credit score. Reviewing your credit report on a regular basis helps you to identify those bad practices. Make sure there are no mistakes in your credit report. Flag any mistakes you identify in the report to the credit information provider so that they can be fixed. Establish a review process and analyse your payment history to keep your credit score building efforts on track. 
   Maintain your momentum and pay attention to the elements that go towards improving your credit score. Building a good credit score takes time and hence, you must know all the bad practices that lead to a bad credit score. Work on the bad credit building practices that you have one by one. When it comes to improving your credit score, practice financial discipline and patience. To treat a bad credit score, be aware of your situation and take charge of your finances diligently.
   
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