Credit score

Stop These 5 Daily Financial Habits That Are Hurting Your Credit Score

Credit rating has become one of the hottest words in the financial world over the past decade, hasn’t it? By now, most of you may have been inundated with many contributions, suggestions, and tips regarding its importance.

From the factors included in its calculation to its role in our life, there is a plethora of information that we are bombarded with in the financial world.

But on top of all that, what many of us don’t realize is that building and maintaining a good credit score is neither a one-day effort nor magic of the day. overnight.

It is what we do every day with our finances that can make or break our credit rating. Eager to know how? Read on as we develop some of our daily financial habits that hurt our credit score.

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1. Spend more than 30% of your total credit card limit

Limit your credit card spending to less than 30% of the total credit limit
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One of the main factors that impact your credit score, and which agencies give a significant weight to, is your credit utilization rate (CUR).. This is the proportion of your total credit card limit used by you.

Typically, financial institutions consider those with a CUR greater than 30% to be credit starved, which can be seen as a higher likelihood of defaulting on future loans. Therefore, the credit bureaus follow suit and reduce your credit rating by a few points if you go over the 30% mark, which can cause significant damage to your credit rating if done frequently.

Therefore, to avoid damaging your credit score, it is best to limit your credit card spending to 30% of your total credit limit.

If you’re having trouble doing this with your existing card limit, ask your card issuer to increase the credit limit or go for an additional credit card. Either way, these steps would cause your total credit limit to increase, which in turn may lower your CUR, as long as you don’t end up increasing your credit card spending when reaching the limit. increased credit!

Also Read: Worth Explains-Why Credit Score Should Be A Millennial’s Financial Best Friend

2. Close your eyes to your credit report

Get in the habit of checking your credit report every month
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This is another unhealthy habit that could hurt 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 on these accounts, credit applications submitted to financial institutions, and other information. credit and personal.

Based on the information provided by financial institutions to the credit bureaus, your credit report is calculated and then your credit score is calculated accordingly. So, doesn’t it become obvious to check your credit report every month?

After all, the presence of any errors or possible fraudulent activity mentioned in your credit report can continue to be bypassed and harm your credit score if you close your eyes to your report.

Hence, make sure to collect your free credit report every year 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 applications such as CRED, which offer the possibility of obtaining free monthly credit scores and credit reports to their visitors. Such ease helps you stay credit aware and take corrective action in a timely manner whenever needed.

Also read: Why it’s important for millennials to check their credit report every month

3. Take only unsecured debt like credit cards and personal loans

How Your Credit Combination Can Impact Your Credit Score
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Yes, you read that right. Having the only forms of unsecured debt, like a personal loan or a credit card, can hurt your credit score. This is due to the presence of the “credit mix” factor in calculating your credit score. It refers to the ratio of your unsecured and secured debt (like home loans and auto loans).

Since financial institutions generally tend to prefer loans to those who have a balanced mix of secured and unsecured loans in their portfolio, credit bureaus also tend to give these consumers a higher and more favorable rating. which results in a higher credit score.

On the other hand, those who have too many loans or only unsecured loans can be viewed negatively by the credit bureau and financial institutions, which can also adversely affect the credit rating.

Also read: How Millennials Can Start 2022 on a Financially Strong Note

4. Submit too many credit applications to lenders

Too many credit applications can damage your credit score
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Isn’t it quite common that whenever we think about taking out a loan or credit card, we either quickly send a request or submit the request directly to financial institutions?

Sometimes we may have a tendency to submit such request / request not to one but to several lenders, especially when we have an urgent need for funds, or if we think we are ‘just checking’ the offers we receive from different lenders.

This is exactly where we tend to go wrong. Let’s get this straight for you.

Whenever you submit an application or request for a loan or credit card, the lender retrieves your credit report from the credit bureaus to assess your creditworthiness as well as your past repayment behavior.

Now these lender initiated credit report requests are listed as credit inquiries on your credit report, each of which can lower your credit score by a few points. And if you end up submitting multiple credit applications to lenders, especially in a short period of time, your credit score may drop.

So it is rather prudent not to just spread your inquiries and inquiries over different time periods to avoid bombarding lenders with many inquiries, but also to make sure that you research credit card and loan eligibility as well as offers. from various lenders by visiting their websites or even online. financial portals offering such ease. And then, submit an application to the most potential (s) only.

Also read: Smart money habits in your 20s that can make you a millionaire in your 30s

5. Failing to Make Timely Payments on Your Credit Card Bills and EMI Loans

Timely credit card and loan payments increase credit score
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Another important factor in calculating your credit score is your repayment history on your credit card bills and loan IMEs.

Thus, neglecting to pay off your credit card bill in full on time and pay the loan’s IMEs on or before the due date can portray irregularities in your credit repayment history mentioned in the credit report. Such a financial habit leads the credit bureaus and financial institutions to view you as a financially unruly borrower, thereby increasing the “credit risk” of lending you.

All of this can not only dramatically harm your credit score, but even reduce your chances of loan and credit card approval. To avoid missing credit card payments, become a CRED member. The app not only sends you timely reminders for credit card bill payments, but also detects hidden charges for you!

Also read: Why Your Credit Score Can Drop Despite Making Timely Payments!

So Click here to download CRED and unlock a plethora of exclusive offers, rewards, cash back and more. to make credit card payments, in addition to getting payment reminders, checking your credit score, detecting hidden fees or charges, and playing fun games that earn you chances of winning exciting freebies!

And don’t forget to refer CRED to your friends and family!

Find out more about such interesting financial content and the latest news, Click here.