Common Mistakes That Can Harm Your Credit Score

Your Credit Score is like a Report Card for your financial health. It is the score that determines your eligibility for loan approval and showcases how financially disciplined you are. The Credit bureaus take into consideration a number of factors and your Credit history to determine your Credit Score.

In India, there are four (4) major Credit bureaus, namely - CIBIL, Experian, Equifax, and CRIF High Mark. Your Credit score may vary across bureaus due to differing scoring models.

Credit scores typically range from 300 to 900, but the range can vary by Creditor and score type and is further categorized into various sections, such as no score, low, fair, good and excellent.Here are some Credit score ranges

In this article, we shall learn about:

• Credit Score Ranges

• Common Mistakes that Can Harm Your Credit Score

• Key Factors Affecting Credit Score

• Factors that Do Not Affect Your Credit Score

• Tips to Improve Your Credit Score

Lack of Discipline is one of the biggest reasons your Credit score could take a hit. Managing your money well often requires that you regularly check your accounts, be proactive about saving and paying off debt, and look for opportunities to be more efficient with your cash flow. As a result, it can be easy to become complacent about your situation. Small habits that may seem harmless can add up to bigger issues over time. Here's how:

• Missed Payments: Your payment date is a substantial factor in determining your Credit Score and thus, missing a payment or making late payments can have a lasting effect on your Credit Score.

  To avoid this, you can set reminders or automate debits for your payments.

• High Credit Utilization: It is calculated using the Credit Utilization Ratio which is the percentage of available Credit you're using. Having a high Credit utilisation ratio relative to your Credit limits signals financial stress and can negatively affect your Credit score. Try to keep your usage under 30% to avoid this - Borrowing more than you can afford can lead you into a Debt Trapt. Be mindful of your spending.

  If you have multiple Credit cards with high balances, focus on making timely payments to bring those balances down and improve your Credit utilization.

• Multiple Loan Applications: Every Credit card or loan you apply for, a hard inquiry (or a hard pull) is made on your Credit Report which can affect your Credit Score, especially if done too often in a short time.

  Be very selective of the loans that you apply for, only when necessary and for purposes you're likely to get approved for. This minimizes inquiries and helps maintain a strong Credit profile.

  Once approved, focus on timely payments and responsible Debt management to ensure a healthy Credit history.

• Not Checking Your Credit Report regularly can leave you unaware of potential issues such as errors, late fees, or even fraud. Mistakes such as incorrect payment details or accounts opened without your knowledge can hurt your Credit score if not caught early.

  Make sure you check your credit report once every 2-3 months so you can quickly and resolve these problems, in turn, keeping your Credit health on track.

• Not Mixing Your Credit Types: Having a mix of different Credit types can boost your Credit score as it shows your ability to handle different types of Credit responsibly.

  Relying on just one type of Credit can hurt your score. For example, along with Credit cards, consider adding installment loans like auto or personal loans to your Credit profile.

• Closing Old Accounts: The older your Credit accounts are, the more positively they affect your Credit score - it is because your Credit Score is determined by the length of your Credit history and closing the account decreases it ,and increases your Credit Utilization Ratio. While closing an old account might sound like the smart thing to do, it is not.

  Consider keeping the account open (unless they have a and making occasional purchases and paying them off from your Old Account to help maintain a favorable Credit history.

• Co-signing for Borrowers with Poor Credit History: It's important to think carefully before co-signing as if the borrower defaults on the loan, it could harm your Credit score as well.

  Before agreeing to co-sign, assess the borrower's financial situation and only proceed if you're confident they can meet their obligations. It's also essential to have an open conversation with the borrower about the responsibilities and risks involved.

Additional Tips:

• Stay up-to-date about your Credit score and financial habits.

• Don’t hesitate to ask for advice when you’re unsure.

• Make financial discipline a part of your routine - your Credit score will thank you for it!

Factors that do NOT affect your Credit Score

1. Bounced Cheques

2. Account Balance

3. Soft Enquiries

4. Usage Of Debit Card

5. Changes in Income

6. Age

Pay Down Debt: Focus on paying off high-interest debt to reduce your overall debt burden and improve your Credit score over time. If you're struggling with debt, consider seeking help from FREED, who can guide you in managing debt which will help improve your Credit health.

Conclusion:

A Credit Score is an important indicator of financial health, influencing access to loans and Credit. It is shaped by various factors and can be impacted by financial habits. High debt levels or missed payments can also negatively impact your Credit score, making it harder to access loans or favorable terms.

FREED helps you regain control of your finances by providing customised debt resolution plans, expert guidance, and strategies. With FREED, you can work toward becoming debt-free while rebuilding a stronger Credit score.