No company approves or cancels a credit card application without checking your credit score. Many people think that the credit score is a fancy term, but it is not, so banks and several other financial institutions check it before they offer and approve your loan or a credit card application. People who make late payments, or do not to pay credit card bills are likely to be affected adversely in the long run. Things like these, as trivial as they might seem, can ruin your credit score, which can affect your future loans or credit card applications. Today let us look at some actions that lower your credit score:
Late Payments
You think as long as you make payments, paying late is not an issue? Wrong late payment history dramatically affects your credit score. Did you know that CIBIL gives approximately 30% weight to your credit history? This means that you have to buckle up and start paying your credit card bills as well as EMIs on time. Also, not paying your credit card bill on time will not only impact a credit score, but it also attracts penalties. Once in awhile making a late payment won’t make much of a difference but making it a habit can cause serious trouble to your credit score record.
Defaulting on a Loan
Always pay your EMIs on time. Making a default can massively impact your credit card score. Loan and tenure make 20% of the credit score. So, never default on loan irrespective if it is taken from the bank or a credit card.
High Credit Card Balances
Making regular high-value purchases can poorly reflect your score. If you have a balance on your credit card, then it reflects weak on the credit card. In case you do want to make high-value purchases than make sure that you all 100% of your total due amount regularly. High credit card balances highlight unfortunate liquidity position that lowers your credit score.
Applying for multiple loans and cards
Also Read: Can applying for multiple credit cards affect your credit score?
Every time you apply for a card, the application is check, and every time it is not approved, it brings down the overall credit score by 10%. So, don’t apply for several credit cards at once. Take a break, of 2-3 months, before applying for a new credit card.
Max-Out Credit Cards
Every credit cards come with a credit limit which is dependent upon your income as well as financial history. However, if you max out your card, it shows a liquidity issue, and this can massively impact your credit score. If you have to use the card, then try an make payments in between the cycle so that you don’t max out your card.
Closing a credit card
Closing a credit card can lower your credit score. But, what makes it worse is when you have some balance in it. Before closing any credit card always pay off all the amount due. Don’t write it off as this can impact your credit history.
No diversity in the credit portfolio
Need money then make sure that you have a Credit diversity as it plays an essential role in your credit score. Securing a loan from one source is never a good option to have a healthy mix of loans and credit card loans.
Consignee in a loan or a loan guarantor
If you have just cosigned a loan or become a guarantor, you might notice that your credit score may be impacted. Although you have not taken any money directly, you are liable to make the payments in case of default, and this could lower your credit score. Irrespective of the fact whether your name is involved directly or indirectly in the loan process, the more loans in your name translates to lower the credit score.
Taking unsecured loans
Unsecured loans require no guarantee. They are offered based on personal income, outstanding debt, and expenditure behavior. Too many unsecured loans highlight low liquidity, which can negatively impact your credit score. On the other hand, a secured loan, if repaid on time, can help you increase your credit score.
Not using your credit card
As mentioned earlier, credit history has a massive role in the credit score. However, if you are not using your card, you would not be able to build a good credit history that could come handy in the future.
All these pointers must be kept in mind to make sure that you can enjoy and preserve your credit score. It takes a lot of time to build a good credit score, so be patient, and extremely careful. Do not lower your credit score due to some trivial issues.
Do you think we have missed a point? Feel free to add it here!