It’s believed to be a good practice to check your credit score as and when required. So, keeping an eye on your credit score gives you space to make improvements if it’s too low & change your way of dealings. Also, this activity will exactly tell you which factors negatively bring your credit score down.
Here are the 7 Factors which affect your credit score negatively:
- Irresponsible Payment Behavior:
Your past record of repayments has an impact on your credit score. It is very important to pay your credit card bills, loan EMIs, etc. on a monthly basis. As per CIBIL reports, a 30-day delay can reduce your credit score by 100 points. So if you use multiple credit cards, loans accounts, it is better to set up reminders to make duly payments. Every overdue shows negatively on your credit score and presents you as a delinquent.
- High Credit Utilization Ratio:
Another important thing is to keep a check on your credit utilization ratio. It is a golden rule to keep your spending limited to 30% of the credit card limit. For example, if your credit card limit is Rs.1 lakh, you should not spend more than Rs.30,000. And in case you have used more 50% of your credit limit, it can have a negative impact on your credit score. Showing a high credit exposure sends out a wrong signal to the lending institutions as a risk of default.
- Outstanding Debt:
The first priority should be to waive off outstanding debts as soon as possible. Unpaid balances take an immediate overturn and reflects on your credit report significantly. It is advised to pay off your outstanding dues even if it’s quite small.
- Payment of Minimum Due Amount:
The minimum due amount is a really small part of the total outstanding. You will surely fall flat on your credit score if only the minimum due is monthly paid. This is also true because along with the debt, you also pay an interest on the principle balance. So, it is advised to pay your credit card bills in full always. It is mainly a reflection of your character and payment behavior.
- Filling Multiple Credit Applications:
Whenever you apply for a loan or credit card, the lender checks up on your creditworthiness and market standing. And this inquiry hits your credit score harder, every single time. Every hard inquiry sends out a negative image of oneself. Multiple credit applications get reported & show on your credit score negatively.
Also, if your application has been recently rejected, avoid requesting for another loan or credit card. It is better to improve your CIBIL score and re-apply.
- Mistakes in your CIBIL Report:
A CIBIL report has a clear depiction of your current and past credit accounts. All the errors can affect your credit score badly. So, sort out all the discrepancies in your credit score so that they can changed at the right time. And this must be done by the lenders only.
Also, keeping an eye on your credit report to figure out any identity theft.
- Not Having a Credit Mix:
Try to strike a balance between secured and unsecured loans. Home loans, auto loans are good examples of secure loans while here a credit card is an unsecure loan. An extreme side of either of the credit types will affect your CIBIL score. So, focus on building a good credit mix.
To sum up, your credit report reflects your credit treatment & track record over a long period. Every credit report is built on the basis of your calculated credit score.
When you apply for any kind of borrowing, you can view the list of lenders, card issuers, agencies to whom you’ve applied & the number of times you’ve checked your own credit/score. Keeping a check on your credit score is extremely important & helps to stay alert. If you identify a major change in the score, it gets easier to make an improvement.