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Credit Score Killers: How Can You Avoid Them?

  Wed, Aug 02, 2017     written by : CSF-Team
Credit Score Killers

Small mistakes can sometimes cause a big damage, and it applies to CIBIL rating management too. While many people know that defaulting on a loan or going bankrupt can ruin a CIBIL score, there are many other ways it can happen too.

The following are some of the biggest credit score killers along with the preventive measures that you can apply:

1. Co-signing a Loan Application or Becoming a Guarantor

Co-signing a loan application is akin to taking a joint loan. So, both you and the other person are equally responsible for the loan's repayment.

If your co-applicant is unable to pay the loan repayments then it can easily kill their credit score and yours as well.

Similarly, when you become a loan guarantor for a friend of a family member then you put your own CIBIL score at stake. In other words, if they default on the loan then your score takes damage too.

Solution: While there are benefits of taking a joint loan (easy approval, high loan amount, etc.) you must not go for it unless you trust your co-applicant a 100%. The same goes for becoming a loan guarantor.

2. Credit Report Mistakes

You will be surprised to know that the credit scores of a significant number of people are ruined just because of a few errors or mistakes in their report.

There are many ways mistakes or errors can be reflected in your credit report. For instance, you may notice unfamiliar credit card accounts in your report if it's a case of identity theft. Mistakes can also take place due to system errors, technical errors, etc.

Solution: Monitoring your credit report actively is the only way to avoid a day when you have to look for loans for bad credit. In the process, if you identify any mistakes, then you can have them corrected by informing about them to your bank or the credit bureau.

3. Late Payments

Consistent late payments can be thought as a serial killer of your score. This is because every late payment makes the situation even worse.

While an occasional late payment by a day or do is alright, you can't afford to miss the deadlines frequently. The amount of delay is also a major factor. For instance, a late payment by more than an entire month can reduce your score by as much as 80 to 90 points.

Solution: There are many ways to track your payments accurately. You can install a personal finance app on your phone that can remind you of the important repayments, or you can also ask your bank to activate the auto-debit feature with which it will deduct the loan EMIs automatically and periodically.

4. Maxed-Out Credit Cards

Using credit cards is good for building a high CIBIL score. However, excessive use can actually kill your credit score. So, it's important you pay attention to what you put on your credit cards.

Solution: Make it a rule of thumb to use only as much as 30% of the credit limit available to you on a credit card. So, if the credit limit on a card is Rs. 2 lakhs, then be sure to spend only Rs. 60,000 or less per month.

5. Frequent Loan Enquiries

Loan inquiries are never good for your score. It's one thing to make an inquiry yourself to get your CIBIL report, but when your bank or NBFC does it, it can have a negative impact on your score.

It's a smart move to compare your loan options to find one that's available at the lowest interest. However, sending multiple loan applications around the same time can cause your score to plummet.

Solution: Instead of sending out the loan applications at multiple banks all at once, send them with a gap of about 2 weeks each.

Loans for bad credit are extremely hard to find. So, watch out for the silent credit score killers mentioned above. By taking the necessary steps and making informed decisions you keep them away forever easily.