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Six Bad Credit Habits to Avoid If You Want To Improve Your Credit Score

The role of a credit score is no longer restricted to simply serving as a metric for determining a person’s creditworthiness. The growing practice of utilising credit scores to set loan interest rates by lenders offering risk-based pricing, as well as by employers before handing over employment letters, is a clear indication of the expansion of the role of credit scores.

Customers with high cibil score for home loan must work hard to maintain them and even improve them in order to be eligible for lower interest rates on loans, as well as more and better credit cards, as the value of credit scores continues to increase. However, while making efforts in this direction, be careful not to fall into the following actions, which can negatively impact your credit score:

Not making payment of credit card bills and loan EMIs on a regular basis.

When it comes to credit card bills and loan EMIs, financial institutions generally prefer to lend to consumers who have demonstrated a disciplined repayment history in terms of making their payments on time. Credit bureaus are also frequently considered to place a significant value on your credit payback history when determining your credit score, according to popular belief.

When you fail to pay your credit card bill or loan EMI on time, the irregularity is recorded in your credit report, which lowers your credit score as well as your credit rating. Furthermore, such anomalies in repayment are typically recorded on your credit report for a long period of time, resulting in a negative influence on your future loan and credit card qualifying eligibility. This can be seen when you go for a monthly credit score check free online.

So, make it certain that you never miss or delay repayment of your loan EMIs, and that you always pay your credit card payments on time and in full. This would progressively assist you in establishing or enhancing your credit score, which would, in turn, increase your chances of being approved for loans and credit cards in the future.

Keeping a high credit utilisation ratio

The credit usage ratio is the percentage of your total credit card limit that is being used by you each month. Consider the following scenario: If you have a total credit card limit of Rs 1.5 lakh and you have used Rs 30,000 of that limit, your credit use ratio is 20%. Given that lenders typically regard a credit usage ratio of more than 30-40 percent to be a sign of credit hungriness, credit bureaus will lower your credit score if you cross this threshold.

Maintain a credit utilisation ratio between 30 and 40% to prevent negatively impacting your credit score and lowering it. If you find yourself above this threshold on a regular basis, contact your credit card issuer to request an increase in your credit limit or to obtain an extra credit card, as doing so will boost your total credit limit while simultaneously decreasing your credit utilisation ratio.

Failure to monitor your credit report on a regular basis

When you apply for a credit card or have a high cibil score for a home loan, lenders will anyway verify your debt payment reliability by obtaining a copy of your credit report from the appropriate credit agency. It is a summary of your credit payback history, which includes both past and current loan and credit card accounts, that is used by credit bureaus to calculate your overall credit score. 

Your credit report may contain inaccurate information owing to clerical errors on the part of the lender or credit agency, or it may contain information that indicates suspected fraud in the event of transactions that are unfamiliar to you. The importance of doing credit score check free online on a regular basis is highlighted by the need to identify and correct credit report inaccuracies and fraudulent activity in a timely manner.

Because you are entitled to one free credit report per year from each of the four credit bureaus now operating in the country, you should take advantage of this opportunity. Check to see that when using the facility of credit score check free online, you are spreading your credit report requests among the four credit bureaus in such a way that you can receive one free credit report every three months.

Frequently and directly inquiring about loans or credit cards with lenders. 

In the event that you have a good cibil score for home loan and want to apply for it, the lender will obtain your credit report from a credit bureau for analysing your repayment history and trustworthiness. Loan originators’ credit report requests are classified as hard inquiries by the credit bureau, and they are recorded in your credit report. They may even cause you to receive a credit score reduction of a few points.

If you prefer not to submit loan or credit card inquiries to lenders directly, consider visiting online financial portals for completing the monthly task of credit score check free online, where you may also compare and choose the most appropriate lender based on your financial requirements and eligibility. Those that use such portals to obtain credit report information are deemed to be making soft inquiries, which have no negative effect on your cibil score for home loan in any manner.

Not keeping track of loan accounts that have been co-signed or guaranteed

When you co-sign or become a guarantor for a loan, you become jointly and equally liable for making sure the loan is repaid on time. Any delay or default in the repayment of the linked loan would have a negative impact on the credit scores of both the principal borrowers and the co-signor on an equal basis.

It’s usually a good idea to keep track of the repayment activities on your co-signed or guaranteed loan accounts on a frequent basis. Failure to keep track of them can result in a decrease in your credit score, which may make you ineligible for a loan or credit card in the future if you need one.

Increased proportion of unsecured loans in the credit mix

When determining your credit score, credit bureaus take into account your credit mix, which is the proportion of secured and unsecured debt you have, as well as other important factors. Due to the fact that lenders often prefer lending to people who have a higher proportion of secured loans in their credit mixes, such as a home loan, a car loan, or a loan against property, credit bureaus also evaluate such borrowers positively in their credit reports. When you conduct a credit score check free online, you can see a change in credit mix if you have prepaid or taken a secured or unsecured loan in recent months.

Alternatively, you might try substituting unsecured loans with secured loans, such as a top-up home loan (for existing home loan borrowers), gold loan, or loan against stocks, in order to maintain a healthy credit mix. Instead, individuals looking for a faster way to improve their credit score should consider paying off their unsecured debt, such as personal loans, loan against credit cards, and other similar loans, as doing so will increase the proportion of secured loans in their portfolio, thereby improving your credit score as well.

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