Which Habits can Cause Bad Credit Scores?
A bad credit score can get your loan application rejected. It can even hamper your chances for a getting through private limited companies, MNCs or workplaces for a job. Moreover a bad credit score may even dim your chances of taking a house on rent. Even if you are able to secure a house on rent or get loan or credit card application accepted, the amount you pay for the same would be much higher than you would have been eligible for otherwise.
Scores lower than 650-700 are considered bad or not good enough to get loans easily or at a cost-effective interest rate. For keeping your credit score above 700 and 750, closer to 900, you need to follow an organized financial plan, wherein you make regular payments, do not miss or delay repayments or EMI instalments, do not make too many enquiries for credit report now and again along with avoiding shooting too many loan enquiries at a time.
Here are few habits that can hamper your credit score:
- High Degree of Credit Card Utilization: Overusing one credit card and keeping other cards inactive could spell badly for your credit score. As per a study, customers with 770 above credit score utilize credit cards about 5.5% on an average, while the ones with score lower than 600 utilize the cards 77.1% on an average.
Utilizing credit cards too many a times may indicate your lack of control over spending. Moreover credit limits are based on the income you draw and if you take too much of credit, the lender may assume that you are accustomed to too much of debt.
- Too Many Loan or Credit Enquiries: If in a short period of time, you drop in many enquiries for credit cards and loans then you are looked down as a credit hungry person, which has a negative impact on credit score. For example you apply with 5 to 6 banks for a loan at the same time, and the banks will refer your credit report wherein your enquiries will be listed. This would create a situation of doubt in their minds regarding your repayment capacity. It is advisable to maintain a gap of few months between credit enquiries.
- Opting for Settlement than Closure: If you are unable to pay loan dues, then you can speak with the provider to negotiate on loan tenure, interest rates or programs. However, do not opt for a settlement, wherein you will pay a lump-sum even thought the offer may seem alluring. Pay instalments to better credit score and do not forget to get a closure of loan. Settlement of loan reflects a bad impression on your credit score.
- Not Optimizing Use of Credit: One of the ways to better the use of credit is to increase the credit limit the moment you apply for new credit cards. Also, you should keep a check on your credit report once in a year to ensure if there are any errors or not. You can correct any details eligible for disputing in the credit report by registering a complaint online on the official website of CIBIL.
- Avoid Taking NOC on Credit Card Closure: If you are closing any credit card, make sure you follow up with the provider for obtaining an NOC (No objection certificate). Not doing so will negatively impact your credit score, and the CIBIL database on credit report will depict that credit card was not closed in reality as there was no NOC produced.