A credit score is an important parameter to get the best loans and credit cards. It is imperative that you take all necessary steps to maintain a healthy credit score. A credit score of 700 and above is considered good, while a 750-score can get you better rates and loan terms.
Credit scores are an important eligibility criterion for your home loans, car loans, personal loans and credit cards. There are 4 credit bureaus in India – TransUnion CIBIL™, Equifax, Experian and CRIF Highmark.
While we have heard a lot of advice on how to improve our credit score, there is not much written about ‘what not to do’ to mess up your credit score. To remedy that, we have rounded up ’30 Things You Could Do That Can Mess Up Your Credit Score’.
1. Not checking your credit report regularly
Though we all know the importance of a credit score, most of us don’t check it at all. It is nowhere on our finance priority list. This is not good at all. Checking your credit score and credit report regularly will help you be aware of your credit standing and take the necessary steps to improve your credit score. This may also help you identify any errors or mistakes in your credit report and get them rectified on time.
2. Paying your bills late
Your payment history is one of the key components of your credit report. It monitors how prompt you are with your bill payments and EMI payments. Making late payments regularly is not a good sign. Timely repayments convert into credibility and get you a better credit score. So, ensure that you make all your bill payments and EMI payments on time.
3. Having too much credit
Your debt liability should be proportionate to your income. If you have too much credit, it doesn’t bode well with lenders. Even if you are timely with your payment, for lenders it will be a high-risk case as there is always a chance that you will max out your credit and struggle to repay them. It is advisable to keep your credit utilization ratio to 30% of all your available credit to maintain a good credit score.
4. Having high outstanding on your credit cards
Credit cards are a thing of convenience; no doubt about it. But if you don’t manage your credit card debt, it may cause your credit score to drop considerably. Experts advise keeping the credit utilization on your credit cards to a maximum of 30%. This allows you to pay the monthly bills comfortably and not end up with late payments or defaults.
5. Not having any credit cards at all
Not having any credit cards at all is as bad as overusing your credit cards. Credit cards give you revolving credit. Lending institutions want to see a long history of responsible credit use, and if you don't have a credit card, you won't have anything to prove. Despite what you would think, not having any credit cards will affect your credit score just as much as having too many.
6. Closing down old or unused credit cards
Though we want to reduce the amount of credit we have, it is better to maintain old credit cards by making minimum purchases on them. Credit cards add to your overall available credit limit. When you cancel them, you are losing out on the credit limit. So it is better to keep them going by making occasional purchases on them and keeping them active.
7. Requesting for a credit limit increase
Credit card companies are constantly luring you with higher credit limits. When you agree to one of those credit limit increase offers, the company will go for a credit check again. This will have some effect on your credit score. So, be cautious when you are asking for a credit limit increase. Do it only if it is really needed.
8. Consolidating debt onto a single card
If you have different credit cards, use them separately and pay the bills separately. Don’t go for debt consolidation. This will decrease your average credit history age.
9. Paying off all your credit cards at once
When you pay off all your credit cards, there won’t be any revolving credit to boost your credit score. So, have cards with different due dates so that there is always a little credit on one of these cards.
10. Using the wrong credit card
You don’t want to use an Rs.1 lakh credit limit credit card to make a purchase of Rs.85,000. That will mess up the credit utilization ratio and affect your credit card. Always keep your credit utilization ratio low.
11. Co-signing on debt
Co-signing on a credit card or loan for a family member or friend can quickly harm a good credit score. First, the debt obligation will appear on your credit report right away, and a higher debt load may have an effect on your credit score. Second, if your friend or family member fails to pay, the missed payments will appear on your credit report. If the account is finally turned over to collections, it will appear on your credit report as well.
12. Not having a healthy credit mix
Your credit "mix," which refers to the various forms of credit you have on your report, accounts for around 10% of your credit score. When you have only one type of credit on your report, such as credit cards, your score is likely to suffer as a result of the lack of details.
A healthy credit mix can include a credit card, a student loan, a mortgage, and a line of credit, among other things. This credit diversity demonstrates to lenders that you can responsibly handle a variety of credit forms.
Additional Reading: What are the factors that affect your CIBIL™ score
13. Paying down the wrong debt first
Your credit score will be improved by paying down your debts. The amount of change you see is determined by which debt you pay off.
If you have a choice of debts to pay off, prioritise credit cards to improve your credit score.
14. Not fixing credit report errors
If you notice an error in your credit report, you must take action to correct it — and then follow up to ensure that it is corrected. Otherwise, the mistake will stay on your credit report, potentially harming your credit score.
Contact the credit bureau that provided the report with the error and request that they investigate it.
Also, notify the lending institution that provided the credit bureau with inaccurate details that you are disputing the information.
15. Making too many credit inquiries
Many credit requests in a brief period of time will have a long-term impact on your credit report. The present credit scoring system helps borrowers to shop for similar types of loans, such as car finance, in a brief amount of time without the requests being recorded as multiple applications. As long as you handle your existing credit cards responsibly, your credit score can improve within three months of the last hard inquiry.
16. Having negative records on your credit report
Negative information on your credit reports, such as collection accounts and late payments, will stay on your report for up to seven years from the date of the first delinquency. Paying your bills on time and keeping your credit card balances down would help you keep your credit score in good shape. While removing negative items from your credit report is challenging, it's a good idea to settle your debts, both to minimise the overall amount of debt you owe and to demonstrate your ability to repay your commitments.
17. Having legal proceedings against you
If you are entangled in some kind of a legal mess, they can affect your credit scores. It is better to get out of such legal proceedings at the earliest.
18. Not filing your income tax returns on time
Whether you are liable to pay tax or not, you have to file your IT returns on time. Not filing your returns on time is recorded in the system and can have a bad effect on your credit score.
19. Not maintaining your credit score after marriage
Post marriage, many women quit working or take a break for childbirth. During this period, they neglect their credit score completely. And when they are back to work and want to get a loan or credit card, their credit score has declined considerably. To avoid this, you have to keep using your credit card regularly.
20. Not caring about your joint debts after divorce
Divorce necessarily doesn’t not free you from debts that you took jointly. Many couples take home loans jointly. As long as your name is on the loan document, you are liable for its payment. Pull your credit report during the divorce process, mark all mutual credit cards, and, if possible, delete your name from all that your partner has agreed to pay.
21. Letting your debts go to a collection agency
If you miss out on a lot of payments, the lender will turn in your debt to collection agents. This could affect your credit score very badly. Make timely payments or contact the lender for help with repayment. If you get a collection agent letter for a loan you owe, try to pay it as quickly as possible so that it is less likely to be reported. Often, review your credit history to see if you have any collection loans that need to be settled.
22. Leaving charge-offs on your report unresolved
When a bill goes unpaid for an extended period of time, the organisation that posted it will mark it as a charge-off, meaning that it was unable to recover the debt. Charge-offs, and all types of debt, may have a negative effect on your credit score. If you have any unpaid loans, pay them off as soon as possible to stop this kind of mark on your credit sheet. Unfortunately, paying off a charge-off does not exclude the details from the credit report. After it is registered, the item will remain on the record for up to seven years.
23. You opt for debt consolidation or debt settlement
When your debt is too much to pay off, you may opt for debt consolidation or debt settlements on them. Though these methods help you to pay off your debt, they will have a negative impact on your credit score.
24. Applying for too many credits at the same time
Applying for too many credits at the same time means that you are credit hungry. This is a red flag for lenders. They are concerned about your repayment capacity when you apply for so many credits.
25. Having a bad credit utilization ratio
Experts suggest that your credit utilization ratio should be below 30% of your total available credit. So you should ensure that you are careful while using your credit card. Ensure that your total credit is proportionate to your income so that you can repay them comfortably.
26. Some of your old debts are still open on your credit report
You might have taken a personal loan and paid it off fully. But it may still be showing up on your credit report as open. That is why you should check your credit report regularly and close down such disputes.
27. Your add-on cardholder is being irresponsible with the card usage
As the earning member of the family, you might have a few add-on cards for your siblings or parents. If they are being irresponsible with their card usage, it will ultimately affect your credit score since you are the primary cardholder.
28. Applying for a loan when you don’t have a stable job
You should gauge your repayment capacity before applying for credit. When you are just starting your career, it is better to wait for some time before you get that first credit card or your first car loan. Once you have been at the job for at least 2 years and are assured of a steady income, you can go for those loans and credits.
29. Being a victim of identity theft or fraud
In today’s digital world, everyone is susceptible to fraud. All our information available online, it is easier for crooks to steal our identity and make financial fraud. You should be very careful about sharing sensitive information online or on any other platform.
30. Not seeking help when you need it
The final straw is realizing when you really need help and not getting it. It is better to admit you're in over your head and seek clinical assistance. There are several financial repair organisations that will assist you with your loans. They'll work with the lender to find a solution for you. They can also provide advice on how to handle your money so that you can repay the loan. It is worthwhile to compensate them when they are skilled in what they do.
- Is it possible to mess up your credit score?
Yes, you very much can. There are umpteen things, that you can be careless about, that could negatively affect your credit score.
- What is a good credit score?
A score above 700 is considered good.
- What constitutes a healthy credit mix?
Instalment loans and revolving credit are typically used in a balanced credit mix. If you have a mortgage, an auto loan, and two credit cards, you have a decent mix of credit that can help you maintain a good credit score.
- What are the two types of credit that will help me improve my credit score?
Instalment loans and revolving credit (from credit cards) are the two types of credit that affect your credit score.
- Is it bad to have multiple credit cards and not use them?
Yes, it is. Credit cards are essential for your revolving credit. Not using your credit cards will result in poor credit history and naturally a bad credit score.