With the increasing use of credit, people are getting more and more aware of the fact that one needs to maintain a satisfactory credit score. Whether it is a personal loan for a sudden cash crunch or a car loan from a private bank such as Axis Bank car loan, a credit line without a good CIBIL score is near impossible to get.
While credit aware individuals know by now that it is important to make timely repayments to maintain a good CIBIL score, they remain unaware of the fact that there are other factors that can damage the credit score of an individual. Here are a few factors that can bring down your credit score without you even realising it.
When people carry multiple credit cards, they often tend to use some cards less than the others. Thus, to consolidate debt, they may think that it is wise to close a card or two. However, this is a cardinal mistake when it comes to your credit score. One of the things that impact your credit score is the age of credit. Thus, when you close your old credit cards, you are not only decreasing your overall age of your credit, you are also increasing your credit utilisation. Credit utilisation is the amount of credit you use as against the total credit made available to you.
Most people think that making timely repayments is enough to maintain a satisfactory CIBIL score. What they do not realise is that, there are other factors that can bring down one's CIBIL score such as credit utilisation. If you do not keep a check over credit card spend, your credit utilisation is likely to exceed 30% thus impacting your credit score negatively thus preventing you from taking Axis Bank car loan if you are planning to buy a vehicle. To keep your credit score intact, you need to maintain your credit utilisation below 30%.
Consider this. Your best friend or a close relative needs to take a loan and asks you to co-sign on line of credit because your score is better than his or hers. You think that it is one time event and readily agree to sign, without thinking of the consequences. You have implicit trust on the primary borrower and thus don't bother to take any contingency measure. But did you know that by co-signing a loan you are in effect sharing as much responsibility as the primary borrower for the entire tenure of the loan? This means that, if he or she makes habitual overdue payments or worse still defaults on the loan, it will have a major negative impact on your CIBIL score and bring it crashing down. What's more, the default will show up on your credit report and hamper your chances of accessing a line of credit when you need it the most. It may come to situation where you are in urgent need of funds and are forced to access a personal loan without CIBIL score, at a higher rate of interest.
How many times have you shopped at a retail outlet or a mall and have been convinced that a store credit card is the best thing that can happen to you? You may have unmindfully parted with your details succumbing to the temptation of earning some extra shopping credits. You may not even know that a store credit card is no different than your ordinary credit card and is yet another line of credit. This means that when you part with your details to the savvy salesman, you are in affect making an application for a new line of credit. This means, that there will be a hard inquiry by the card issuer (that has a tie up with the store).
Each time there is a hard inquiry on your CIBIL report (by a prospective lender) your credit score takes a hit. Besides, too many hard inquiries on your CIBIL report makes prospective lenders wary of giving you a line of credit when you need one. What the store salesman does not tell you that your ordinary credit card comes loaded with a host of benefits which may work out to be even more than the store credit card that he has just convinced you to opt for!
Finally, you may think that you are doing everything right to maintain a good CIBIL score, but have procrastinated pulling out your CIBIL report to see if things are in order. As a result, there may be errors or discrepancies that may have crept into your report, thus pulling down your CIBIL score drastically. And hence, you may not be able to access a line of credit when you are in dire need of it and be forced to take a personal loan without a CIBIL score, for no credit fault that you are responsible for.
Your credit score is a measure of your financial health. Not making an effort to improve CIBIL score and keeping in mind the factors that impact it, may wreck it accidentally.