What are some mistakes that can hurt your credit rating?

by Aman Khanna Finance

Whether you are applying for a new loan, looking for higher credit limits or venturing into other financial investments, credit scores always play a huge role in determining your application status in banks and other financial institutions. There are many benefits of a good CIBIL score. A high CIBIL score enhances your chances of getting loan approvals, easy EMI payments, credit limit increments, etc. A score anywhere above 700 is considered good enough for a borrower who is seeking extensions and loan approvals.

Every small, arbitrary action can possibly affect your credit rating. Therefore, it is advised that one should track their credit records and check them every 6 months in order to avoid any data discrepancies. Delayed reporting and data inconsistencies from the bank’s side can severely impact your CIBIL score. Here are some of the most common mistakes you should avoid, to improve your CIBIL score.

Racking up credit card debt

People who get their first credit cards while they are still in college or have just started out, tend to spend more recklessly and take credit limits lightly. Little do they know that past credit history counts for as much as 35% of the total credit score.

Missed or late payments can stay on your credit record for as long as 6 years. Getting an education loan for your masters, a personal loan for a car, house, etc., then becomes difficult as your credit report shows poor records from the early days.

To improve CIBIL score, it’s also essential to pay all the outstanding credit card dues on time and not just the minimum amount. Constant rolling over of dues can hurt your credit score and subsequently your credit worthiness.

Paying credit or loan payments late

It is one of the most common mistakes that everyone makes at least once in their lives. Credit agencies use previous payment history to determine credit scores. One or two late payments on your credit cards, loans and other credit obligations are quite normal.

On the contrary, if the records show multiple late payments, it can negatively affect your CIBIL score. A prudent way to avoid late payments is to set up an ECS mandate with your bank whereby the EMI amounts on loans are debited directly from the account. It’s a hassle-free way to get rid of late or delayed payments.

Applying for new cards often

Every time you apply for a new credit card, an enquiry is made by the bank to check your credit score and track your payment history. Frequent enquiries about your credit score can give a poor impression of your record.

It paints you as a credit-hungry borrower among prospective lenders and this can have a negative impact on your CIBIL score. Thus, it is better to refrain from applying for multiple credit cards until and unless you really need them.

Spending to your credit limit

Debt utilization ratio is one of the many factors that determine your CIBIL score. It is simply the amount of available credit you are using. If you are running up credit card debt above 50% of your limit, your credit score can get impacted and ultimately decrease. Steer clear from maximizing your credit limit and use only the amount you really need.

A low debt utilization ratio goes a long way in improving your CIBIL score and enhancing your eligibility for availing big-ticket loans in the future.

Every lender has its own set of guidelines which borrowers have to follow in order to avail financial services. It is imperative that you maintain a good CIBIL score to avoid any delayed loan approvals or rejections in the future.

Nevertheless, there are some lenders that provide easy personal loan eligibility criteria and minimal documentation. With pre-approved offers from Bajaj Finserv, you can avail good interest rates on a personal loan, get additional benefits on personal loans, business loans, and other financial services.