Credit score has become one of the most buzzing words in the financial world over the past decade or so, hasn't it? By now,?most of you might have been flooded with plenty of inputs, suggestions and advice surrounding its importance.?
From the factors included in its calculation to its role in our life, there's a plethora of information we are bombarded with in the financial world.?
But besides all this, what many of us fail to realize is that building and maintaining a good credit score is neither a one-day effort nor overnight magic.
It's what we do every day with our finances that can make or break our credit score. Eager to know how? Read on as we unfold some of our day to day money habits that harm our credit score.
One of the major factors that impact your credit score, and is given a significant weightage by bureaus, is your credit utilization ratio (CUR). It is the proportion of your?total?credit card limit?utilized?by you.?
Generally, financial institutions?consider those having a CUR over 30% as credit hungry, which can be viewed as a higher likelihood of defaulting in future credit repayments. Consequently, credit bureaus too follow the suit and pull down your credit score by some points on breaching this 30% mark, which can cause significant damage to your credit score if done frequently.
Hence, to prevent harming your credit score, it's better to contain your credit card spending within 30% of your total credit limit.?
In case you find it difficult to do so with your existing card limit, either request your card issuer to increase the credit limit, or go for an additional credit card. Either way, these steps would result in boosting your total credit limit, which can thus lower your CUR, provided you do not end up spiking your credit card spends upon obtaining the increased credit limit!
Also Read:?Worth Explains-Why Credit Score Should Be A Millennial's Best Financial Buddy
This is another unhealthy habit that holds the potential to harm your credit score.?
For the uninitiated, a credit report is a summary of your current and past loan and credit card accounts, your monthly repayment history towards those accounts, credit enquiries submitted to financial institutions, and other credit and personal information.?
Based on the information fed by financial institutions to the credit bureaus, your credit report is computed, and then accordingly your credit score is calculated. So, doesn't it become obvious to keep a check on your credit report every month??
After all, the presence of any error or possible fraudulent activity mentioned in your credit report can keep getting bypassed and harming your credit score if you turn a blind eye towards your report.?
Hence, make sure to fetch your free credit report annually from the 4 credit bureaus present in India. And for regular updates of your credit score and report on a monthly basis, you can visit various online financial portals or apps such as?CRED, which have been offering the facility of monthly free credit scores and credit reports to their visitors. Such a facility helps you remain credit aware and timely take the required corrective measures whenever need be.
Also Read:?Why It's Important For Millennials To Check Their Credit Report Every Month
Yes, you read it right. Having the only unsecured forms of debt, like a personal loan or credit card can be harmful to your credit score. This is due to the presence of the ¡®credit mix¡¯ factor in your credit score calculation. It refers to the ratio of?your?unsecured and secured debt (like home loans and car loans).
Since financial institutions tend to usually?prefer lending to those with?a?balanced credit mix of secured and unsecured loans in their portfolio,?credit bureaus also tend to score such consumers higher and more favourably, which translates into a higher credit score.
On the flip side, those with too many or solely unsecured loans may be perceived negatively by the credit bureau and financial institutions, which may harm the credit score as well.
Also Read:?How Millennials Can Kickstart 2022 On A Financially Strong Note
Isn't it pretty common that whenever we think of taking a loan or credit card, we quickly send an enquiry or directly submit the application to financial institutions??
Sometimes we may tend to submit such enquiry/application to not just one but multiple lenders, especially when in urgent need of funds, or if we think of ¡®just checking out¡¯ the offers we receive from different lenders.?
That¡¯s exactly where we tend to go wrong. Let's put this straight for you.
Each time you?submit?a loan or?credit card?application or enquiry, the?lender fetches your credit report from the credit bureaus for?evaluating your creditworthiness as well as past repayment behaviour.?
Now, such lender initiated credit report requests are listed as credit enquiries in your credit report, each of which can reduce?your credit score by?few?points. And in case you end up submitting multiple credit applications to lenders, especially in a short span of time, your credit score can suffer a dip.?
So, it's rather prudent to not just spread out your applications and enquiries across different time periods to avoid bombarding lenders with lots of applications, but also ensure to research about credit card and loan eligibility plus offers of various lenders by visiting their websites or even online financial portals offering such a facility. And then, submit an application to the most prospective one(s) only.
Also Read:?Smart Money Habits In Your 20s That Can Make You A Millionaire In Your 30s
Your repayment history towards your credit card bills and loan EMIs is another factor that occupies a significant weightage in your credit score calculation.
So, being careless in timely making your credit card bill repayment in full and paying the loan EMIs on or before the due date, can depict irregularities in your credit repayment history mentioned in the credit report. Such a financial habit results in credit bureaus and financial institutions viewing you as a financially undisciplined borrower, thus increasing the ¡®credit risk¡¯ involved in lending to you.?
All this can not just significantly harm your credit score, but even pull down your loan and credit card approval chances as well. To avoid missing out on credit card payments, become a CRED member.? The app not only sends you timely reminders for credit card bill payments but also detects the hidden charges for you!
Also Read:?Why Your Credit Score Can Fall Despite Timely Payments!
So?Click here to download CRED and unlock a plethora of exclusive offers, rewards, cashbacks etc on making credit card payments, besides getting payment reminders, credit score check, detect hidden fees or charges and participate in fun games that fetch you chances to win exciting gifts!?
And don't forget to refer CRED to your friends and family!
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