Mistakes That Can Lower Your Credit Score

Do you know a good credit can save you thousands of rupees in interest? On the flipside- a single mistake on your part can cost you oodles of money as it directly impacts the credit score rating. No Worries! Well, Square Yard is here to help you avoid them.

Attaining a good credit score above that coveted 800 marks is not a cakewalk and an easy feat. It takes a lot of persistence, zest and efforts to slowly and steadily build your credit score into something that can get you a fleet of benefits and rewards. The only shortcut to the road to a good credit score is to avoid mistakes that hold the power to lower your credit score. For this, you ought to know what mistakes you can inadvertently make that can affect your credit score rating. Have a Glance!

#Mistake 1: Maxing Out your Credit Card

If you are overstepping and going overboard with your credit limit, it won’t do you any good. Utilizing too much credit will reflect poorly on your credit score. Bear in mind, the proportion of your credit limit that you use on a day-to-day basis can substantially impact your good credit score rating. 

For Instance: If you have a credit card with a limit of Rs. 1 lakh and you spend nearly Rs.55, 000 each month, your credit utilization ratio will be over 50%. This perpetual habit of yours will lead to a decline in your credit score ratings.

#Mistake 2: Missing Out on Deadlines and Payments

We comprehend, everyone is so busy with their own life that the responsibility of making payments before the deadline date can totally skip their mind. But this reason doesn’t justify your mistake as it can big-time hurt your credit score ratings. However, the intensity of impact on the credit score depends on how late you are making the payments.

For Instance: A 30-day late payment is bad, but not as bad as a 90-day late payment.

#Mistake 3: Habitual of Making Late Payments

If you are continuously making late loan EMI or credit card payments, it will lead to a low credit score rating. Although, making one or two late payments may not impact your credit score rating. But if you have made it your habit and you are repeatedly missing payments over an extended period of time, it will 100% affect your credit score negatively.

Key Takeaway: Don’t worry, you are not committing a crime by making a late loan payment or credit card payments. It is just that you have to be responsible as it can affect your credit score rating. To avoid delay in paying bills go for an automated bill payment feature.

#Mistake 4: Overlooking the Smart Approach of Cancelling a Credit Card

It is better to not close credit cards that you already have, but if it is imperative to do so, then ensure, you are cancelling the credit card in the right way. Before applying for the cancellation of the credit card, pay off the remaining balance owed on the credit card in the full moment. Also, if you owe a balance on the credit card, then you can shift the balance of the card you are about to cancel over to a card you plan to keep. Additionally, right before you officially cancel the card, contact the card issuer directly to double confirm whether the balance is zero or not.

#Mistake 5: Not monitoring your credit report

Take out some time out of your busy schedule to check your credit report and ensure that the information is up-to-date, apt and accurate. Carefully examine if there are any mistakes or fraudulent accounts. It is pretty common to find minor errors such as misspelling of name and address or incorrect personal information on the credit card. 

Well, the factor that affects your credit score the most is incorrect payment history as it can potentially drag down your creditworthiness and credit ratings. Immediately file a complaint with credit bureaus, in case you spot incorrect, incomplete or fraudulent information on your credit report.

Pay Heed To:

• Payments you can’t recall. For Instance: Inaccurate payment status
• Incorrect account numbers
• When the status of a closed account still shows open
• Mention of an incorrect credit limit

Obtain your report once a year from two major credit bureaus such as TransUnion and Equifax. Acquire a credit report from one bureau first and then wait the next six months to get the report from another bureau. And do remember, checking and analyzing your own credit report doesn’t hurt your credit score.

#Mistake 6: Rejecting the offer of credit limit increase

Banks give the chance of increasing the credit limit to only those who are responsible borrowers, so consider yourself lucky. Do not look with suspicion and never reject the offer only because you find a low limit to be better. Think again because a higher credit limit can actually be beneficial to your credit score rating.

For Instance: Hypothetically, owing a ₹42,000 balance on a credit card with a limit of ₹50,000 is considered riskier than someone who carries the same ₹42,000 balance but on a card with a limit of ₹80,000.

In a nutshell, a credit limit increase will only benefit your credit score ratings, at no cost, and upgrade your creditworthiness.

Wrapping Up

Sometimes you are caught unawares when you believed that your credit lines were well managed but you are handed out a low credit score. Do not lower your spirits because there are full chances that some mistakes or lack of awareness are negatively impacting your credit score rating. Do not forget, sometimes even the smartest borrower makes mistakes when it comes to their credit score. You never know what mistake can hit your credit score therefore read the above-mentioned mistakes adequately so that you are cautious in the future.