Common Credit Score Mistakes to Avoid


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A good credit score is essential in order to get a smooth access to credit.‭ ‬However,‭ ‬many of our financial habits can adversely impact your credit score.‭ ‬Knowing and avoiding these mistakes can go a long way in maintaining a healthy credit score.‭ ‬

Six common mistakes to avoid for a healthy credit score.

  • ‭ ‬Avoid delaying repayments: Missing a due date of your credit card bill and not paying EMIs on time can have an adverse effect on your credit score.‭ ‬Remember that every delayed payment or late payment is reported by your bank/‭ ‬lender to the bureau.‭ ‬While one or two payments might not impact your credit score,‭ ‬a consistent pattern of late or default payments should be avoided.‭ ‬If you tend to forget to make payments by the due date,‭ ‬set up email or SMS reminders or give standing instructions for the EMI or credit card amount to be deducted automatically from your bank account.‭ ‬This way you can avoid hurting your credit score.
  • Keep away from high credit utilization: One of the most important factors that determine your creditworthiness is your credit utilization ratio.‭ ‬It indicates the percentage of available credit that you are using at any given point in time.‭ ‬If you consistently spend‭ ‬30%-40%‭ ‬of your total credit limit,‭ ‬it gives an impression to the lender that you are‭ ‬‘credit-hungry‭’‬ and that raises questions on your debt repayment capability.‭ ‬As a general principle,‭ ‬it is advisable to keep your credit spend within‭ ‬40%‭ ‬of your credit limit so that your credit utilization ratio remains low.
  • ‭Do not close old credit card accounts: People generally tend to close their old credit cards and retain their newest cards.‭ ‬But you should actually do the opposite‭; ‬the older your credit card,‭ ‬the better for your score.‭ ‬This is because it allows lenders to see a long credit history across multiple accounts to assess your repayment capacity.‭ ‬If you close your old accounts,‭ ‬your credit history becomes younger and it can negatively affect your credit score.
  • Do not apply with multiple lenders: Whenever you apply for a loan or new credit card,‭ ‬you will be subject to a credit inquiry,‭ ‬which will reflect in your credit report.‭ ‬This is because lenders would check your credit score before proceeding on your loan application request.‭ ‬But too many credit inquiries can also affect your credit score negatively.‭ ‬Further,‭ ‬lenders are skeptical to lend to borrowers with multiple loan application rejections in a short period of time.‭ ‬This is why it makes sense to apply through fin-tech lenders or online market-places to zero in on the best loan and credit cards offer from several banks without resulting in multiple loan queries and compromising your credit score.
  • ‭Check your credit report at regular intervals: Checking your credit score and report regularly is essential to identify any errors or mistakes as well the impact of your recent loan transactions on your credit score.‭ ‬You can easily get a free copy of your credit report and score from‭ ‬If you find any error,‭ ‬you can get them rectified immediately by contacting the credit bureau.‭ ‬Errors in your credit report or credit limits could unnecessarily drag down your score.‭ ‬Hence,‭ ‬make sure you keep a check on your credit reports periodically.

  • Avoid impulse purchases using a credit card: Credit cards are a very convenient and secure alternative to cash.‭ ‬However,‭ ‬this convenience can be tempting and may land you in a financial crisis.‭ ‬Always practice caution when availing credit and avoid impulse purchases through your card.‭ ‬Remember to repay the amount after the grace period is over.‭ ‬Hence,‭ ‬it is important to spend your repayment capability.‭ ‬Frequent utilization of credit on your credit card as well high level of credit utilization as a percent of your credit limit can hurt your credit score.‭ ‬Thus,‭ ‬disciplined swiping of the credit card is crucial in maintaining a good credit score.‭

These are a few common mistakes that‭ ‬many people unwittingly do and which can impact their‭ ‬credit score negatively.‭ ‬Practicing financial discipline and keeping an eye on your credit score can help you avoid these mistakes and secure your future by maintaining a healthy credit score.

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