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The Ultimate List of Credit Score Mistakes That are Commonly Made

  Sat, Sep 16, 2017     written by : CSF-Team
Credit Score Mistakes

We all make mistakes. However, some mistakes lead to more serious repercussions than others, such as the credit score mistakes.

If you have any friend or a relative who is trying to get a loan for low CIBIL score, then they can testify that it's nothing less than a herculean task. Unfortunately, a large number of people overlook the significance of CIBIL score and realize their mistake quite late in life.

If you want to ensure that your CIBIL score calculation is not stymied in any manner, then the list of all the common mistakes given below can be of great help.

1 Late Payments

Everyone knows that late payments is a bad thing. However, most people don't know the huge impact it has on their credit score and that's precisely the problem.

Believe it or not- most credit rating agencies give the maximum weightage to the payment history in CIBIL score calculation. So, if you don't want to end up with a poor credit rating, you must ensure that every single loan EMI and credit card bill is paid on time.

2 Becoming a Loan Guarantor

One must always help others whenever there is an opportunity. However, in the process, they must also protect themselves. This brings us to the act of becoming a loan guarantor for someone.

When you become a loan guarantor, you take a big responsibility. If down the road, the loanee is unable to repay the loan, then not only you could be held accountable, your credit rating could also be wrecked completely. So, unless the person is your family or someone who you can trust a 100%, becoming a loan guarantor can have disastrous results.

3 Closing Accounts

Closing a credit card account can have a huge impact on your credit score in two manners:

  • Credit Utilization Ratio: When you close a credit card account it instantly affects the credit utilization ratio. For instance, if you have three credit cards with Rs. 1 lakh limit on each and your average monthly utilization is Rs. 90,000, then your utilization ratio is 30% (90,000/300,000) which is fine. However, closing one card while keeping your utilization the same will change the ratio to 45% (90,000/200,000) which is higher than the threshold and can damage your score.
  • Age of Account: If you have an old credit card account which you have maintained well and made the payments for on a timely basis then it's possible that it has made a sizeable contribution to your credit score. So, if you accidentally close the account, you can cause your rating to go down instantly.

The takeaway point here is that you should be extra careful when you have to close a credit card account because a single wrong move can do a lot of damage.

4 Ignoring Credit Reports

Most times, people start monitoring their credit report when they are unable to get a loan for low CIBIL score. Ironically, this problem can be easily avoided if they start paying attention to their report earlier.

It's a good practice to start monitoring your CIBIL report well in advance, even when you don't need a loan or a credit card in the near future. This is because the sooner you start, the more control and time you will have to work on your rating.

5 High Credit Utilization Ratio

This one was covered briefly above but needs to be addressed individually as well.

One of the biggest mistakes people make that destroys their credit score is a nonchalant use of a credit card.

If you tend to maximise your credit cards often, then you are most likely damaging your CIBIL rating in the process. Instead, you should try to keep the utilization ratio below 35%.

6 Minimum Payments

Making minimum payments for your credit card bills is never good for your CIBIL score. This is because this leads to debt accumulation which affects your CIBIL score calculation. So, it's better to use your cards only so much that you can pay the bills in full.

So, if you are careful with these mistakes, then there is no way you can't attain an attractive CIBIL rating.