Your credit score, regulated by the Credit Information Bureau India Limited (CIBIL), directly controls your future transactions with lenders or financial institutions. A good credit score will get your loan /credit card application approved without any hesitation whilst, a bad score will hamper your current and future prospects. Lack of knowledge is the primary reason why we cannot always maintain a good credit score. This lack of awareness lands us in difficult situations, especially during testing times. That’s why we have made a list of five critical factors that will help you create and maintain a good financial history.
Here is a list of five things you should avoid for a better credit score:
Late and Missed Payments
Not paying your EMI or credit card bill on time is the biggest enemy of a good credit score. Missing or delaying your payments have the same affect and taking them lightly; will significantly lower your CIBIL score. If you cannot pay the entire amount, you should at least pay the minimum bill to salvage your score to some degree. If you are going through a financial crunch and have multiple credit card bills, you can pay the debt off by taking a personal loan and pay only one EMI every month. You can also check CIBIL score for free using our smart financial health check tool.
High Credit Utilization
Apart from late payments, utilising more than 30% of the credit limit also takes a hit on your score. If you ignore your income and keep spending, your score can be setback by a few points.
Loans and credit cards help people buy things that they cannot afford with full payment. However, making it a habit will only lead to an endless debt repayment cycle. You can reduce excessive utilization by using cash wherever possible and limiting the usage of credit cards.
Becoming a Loan Guarantor or Co-Applicant
Taking a loan together with your spouse or being a guarantor for someone who regularly pays their EMI is a good idea. Being a co-applicant or guarantor with a good repayment history elevates your score. However, this a tricky spot be in because if the person defaults in both scenarios, you will have to face the consequences.
When applying for a loan or credit card a hard inquiry shows creditors that you applied to get credit somewhere else, for any kind of loan. The traces of hard inquiries stay on your credit report for about 24 months. A hard credit inquiry brings down your credit score from five and ten points. So, be mindful of the credit you apply for, the number of times you apply and how often you apply for it because each inquiry is being added to your credit report. However, if a hard inquiry on your credit report is inaccurate, you can dispute it as you would any other credit report error.
In cases where you have multiple hard credit inquiries from the same company regarding other loans in a short amount of time, these inquiries won’t affect your credit score as much. A credit score damage caused by inquiries can be rebuilt with time. When you need credit, it’s a good idea to check whether you are likely to qualify before you actually apply for it, because a hard inquiry will be recorded whether your loan is approved or not.of such individuals as they are deemed creditworthy. Hence, it is important for anyone applying for a personal loan to have a good CIBIL score. This helps in making the loan process a lot easier with the quick disbursal of the loan amount.
Applying for Multiple Credit Cards
If one lender has rejected your application for a credit card, do not immediately go for another vendor. Applying for a credit card with multiple vendor’s shows desperation and this will lead to hard enquiries of your score. Hard enquiries are ones made by lenders to extract your score. If there are too many hard enquiries against your name, your score is bound to come down.
Defaulting is the worst mistake one can commit after getting a credit card or loan. Defaulting on any payment can lead to being permanently being blacklisted by a lender.
The mistakes that we make should give us an opportunity to learn and grow. To maintain a good credit sore always be vigilant and do not commit the mistakes listed.
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