Many of you must know that your credit score seals the deal when you apply for a loan or a credit card. That is why it is always advised that you should maintain a good credit score.
However, knowingly or unknowingly, many of you make mistakes that hurt your cibil score. Some of these mistakes include the following –
• Defaulting on your liability payments
The most common mistake which also puts a significant impact on your credit score is the non-payment of your liabilities. If you default in paying your loan EMIs or credit card bills, your credit score would be damaged severely. Repayment defaults constitute a major portion of your credit score calculation, and so any mistake in repayments would also incur the maximum damage to the score.
• Making too many loan applications simultaneously
Every time that you make a loan application, the lender makes a hard enquiry into your credit report. Each hard enquiry hurts your score. So, if you make too many applications at once, multiple enquiries would be made which would damage your credit score
• Having a high credit utilisation ratio
The credit utilisation ratio is the ratio of the credit that you use against the total credit limit, which is allowed to you. If your credit usage is high, the ratio would also be high. A high ratio is bad for the credit score and so it is advised that you should restrict your credit usage to up to 30% of the available credit limit.
• Having too many unsecured loans
A good credit score is calculated when you have a varied mix of credit in your name. The mix should involve both secured and unsecured loans. In fact, the higher the number of secured loans that you have, the better would be your credit score. On the contrary, if you have too many unsecured loans in your name, your credit score would suffer.
• Ignoring your credit report
When lenders make enquiries into your credit report, your credit score suffers. However, when you make enquiries into your credit report, the score can improve. Self-checking of credit score does not have any impact on your score. It can, on the other hand, make you aware of any red flags so that you can improve your score before you need a loan. So, ignoring your credit report is a mistake and you should check your report periodically.
• Becoming a loan guarantor
When you become a loan guarantor, you take on the responsibility of paying the loan in case of default. Moreover, your credit score is also on the line if the borrower defaults on repayments. So, try and avoid becoming a guarantor of the loan as any default by the borrower would also hurt your credit score.
• Closing old credit cards
Closing old credit cards is a mistake as doing so lowers your credit limit. Each card has a credit limit, and when you close it, you lose the available limit. A reduction in credit limit increases your credit utilisation ratio and hampers your score.
So, these are the common mistakes that hurt your credit score and which you should avoid at all costs.
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