4 Common Mistakes That Affect Your Credit Score and What You Can Do to Correct Them

In today’s world the ratio of salary to cost of commodities is so high that it is almost impossible for any one person to buy anything without a loan. With so much products available in the market, some people today the buying of products with the help of loans has become a fashionable event. Now all this buying using loans is possible and easy for people with good credit scores, what about those who don’t have that advantage.

This article is for all those people who have bad credit history and what to expect and how to get a loan.

First let’s get the basics out of the way

What is a credit score and why is it important?

A credit score is a cumulative number or an aggregate based on all the loans and repayments that you have done. It takes into consideration the loan you have taken and how regular you have been on your payment. The reason credit report and credit score is given so much importance is because it determines most of the attributes of a loan – Interest rate, tenure, loan amount etc.

So, if you have missed or have late payments on your credit report, then your score will be low. Banks generally prefer people with a credit score of 750 as an ideal borrower. Anything below that your rate of interest(increase), loan amount(decrease) and tenure(decrease) will get affected.

4 common Mistakes that people make, that affects their score

People don’t know the importance of a good credit score until they apply for a loan and get rejected. Following are some of the common reasons why you might have a bad credit score:

Mistake 1

Not paying EMIs or loan installments in full

Mistake 2

A consistent history of delayed credit card payments.

Mistake 3

Applying for credit (loans or credit cards) with multiple lenders within a short period of time

Mistake 4

Getting close to or crossing your total credit limit

Try to improve your credit score to at least 750 and above in order for your loan application to be accepted. Any rejection will hurt your credit score even further.

What are the options available to a person with bad credit score?

The ideal option for anyone with bad credit score is to pledge a collateral to get a good loan deal. With the collateral they can ask for better interest rates. These are called secured loans.

But if you are looking for unsecured loans i.e. not fronting any collateral then you need to have good income from reputed company – If you have a very good income and working in a very good company and for at least 2 years then you will be eligible for a loan.

The biggest challenge you will face is that you will get unattractive interest rates. Banks consider the risks in giving you an unsecured loan and will demand a higher interest rate. In some cases, the banks may reduce the loan amount. For example, if in normal circumstances your amount eligibility for a home loan is around 80% to 90% but because of bad credit score you will probably get only 65% to 70%.

Your loan tenure will also be shorter as banks will look to collect the loan as quickly as possible.

There are 2 options apart from banks that a person with bad credit can try.

  1. NBFC – There are some NBFC who provide loans for people with bad credit. They will charge a little bit higher interest rate.

  2. Peer to peer(P2P) – There are some website offering peer to peer(P2P) loans upto a maximum of 5 lakhs for tenures ranging from 12 – 36 months.


Credit scores are mighty important when applying for a loan especially an unsecured loan. You should maintain a good credit score by trying and paying your dues on time. In case you are looking for ways to improve your credit score you can contact experts or credit coaches like CreditMantri to help you improve your score to get the best deals on credit cards and loans.