Mistakes that Can Lower your Credit Score

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

Your debt utilization ratio is one of the biggest contributing factors to your credit score. Generally, lenders won’t grant you any new credit if 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

Keeping too many credit cards open 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 dip and 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.