A credit score is something that reflects your credit history and thus it is something that cannot be built or destroyed in haste. A lot of factors contribute in making or breaking your credit rating. Being a responsible borrower is the simplest way to having a good cibil score; but if you have not done that then you will have to work on trying to get a better score. While there are certain things that can help you build your score, there are some other aspects that can pull it down. So here is a look at few things to avoid if you are looking at improving your score.
- Excessive Use of Credit Card: Credit cards are a great convenience but their use may often be criticized as one can easily go overboard and regret it later. However one may think that if they manage to pay their full dues on time the credit card usage will never cause a problem, but this notion is wrong. Using your card judiciously is important if you are looking at improving your score. This means that you need to limit your credit card expenditure per cycle to 40% or less of the sanctioned cared limit. This is known as credit utilization ratio and this needs to be calculated per card wise as well as for all cards put together in case of multiple cards. High credit utilization can harm the score as the user appears to be credit hungry.
- Making too Many Inquiries: When you apply for a loan, the lender seeks your CIR from the credit agency which is known as a hard inquiry. Each hard inquiry is recorded in the CIR and impacts the score negatively. Thus if you truly require a loan then make sure you research well before you actually apply for a loan. This will ensure that your loan application is not rejected which will eliminate the need to apply for a loan elsewhere. So for example if you want to buy a new car and need a loan for it, then carefully research about car loans Check which lender offers loans at what rates, what is the LTV ratio, what are the documents required, at what credit score they are willing to offer loans and so on. You should then approach a lender who you know meets your requirements and who will be willing to lend to you based on your rating and profile. Refrain from making unnecessary enquiries.
- Settling an Account: Consider an example to understand this aspect. Priya is looking at improving her credit score so that she can apply for a home loan next year. She goes through her CIR and spots an old credit card debt; she decides to take care with an aim of improving her score. She got in touch with the credit card company and she paid the dues after some negotiation. Hoping to see her score improve she got her CIR but was dismayed that it had reduced further. If you are as confused as Priya that why did this happen then we have an explanation. When you pay old dues then the fate of your score depends on how this repayment is reported. If the account is reported as settled then it could mean trouble as it will raise a question mark in the minds of all future lenders about getting their money back in full. If the debt is reported as simply being paid then it will have an opposite impact.
- Guaranteeing a loan without thinking: Sometimes an applicant may find it difficult to get a loan on his/her own due to lack of proper documents, low score, not meeting the eligibility criteria and so on. In such a scenario they may ask someone to guarantee their loan. Well this can definitely ease out the problems for the person seeking the loan but may cause the guarantor to land in a tricky position without realizing so. If the applicant fails to pay his/her dues on time then the guarantor may be asked to do soon. What’s more each delayed payment can harm the score of the guarantor as well. So though you may be servicing all your loans on time you score may still be low because of a loan you guaranteed. Thus if you plan to guarantee a loan, do it after being sure about the applicant, you own ability to service it in case the applicant fails to so and also after you are sure about its impact on your own credit score.
Often small things can cause your score to dip. Thus make sure you steer clear from the above mistakes if you want to be credit healthy.