Whenever you seek a loan the lender asks you your credit score. If you have a score of 650 and above you qualify to avail the loan. Otherwise, your loan application is rejected. The score judges your creditworthiness and is an indicator of successful repayment of the loan. Since the sanction of loan depends on your credit score, building and maintaining a good score is important if you would need a loan any time in the future. However, many of you make mistakes with your credit which hampers your credit score. Seven of the most common mistakes which destroy your credit score are as follows.
What Hurts Your Credit Score The Most
- Defaulting on debt payments
The first and the most common mistake which many of you make is delaying or defaulting on your debt payments. Repayment of existing debt reflects directly on your credit score. Any delay or default and the score would suffer greatly. You should, therefore, pay your debts on time.
- Having a lot of credit
There is a concept in the calculation of credit score which is the credit utilization ratio. The ratio is calculated as the credit you have availed against the total credit available to you. If you have taken a lot of loans and have availed substantial credit, the ratio would be high. A high ratio is bad for your credit score as it hampers the score.
3.Having a major proportion of unsecured loans in your debt portfolio
If you have multiple debts and unsecured debts feature prominently in your debt composition, your score would be negatively affected. Unsecured loans and debts are considered to be bad for the calculation of credit score. Secured loans are considered good loans and the more secured loans you have the better would be your credit score.
- Closing your credit card account
You might have multiple credit cards and think about closing one or two cards which are not being used much. While you can do so, you should know that closing your credit cards lowers your credit score. This is because of the credit utilization ratio being affected. As you close the card you lower the credit limit available to low. As the limit is lowered your credit utilization increases which reduces your credit score.
- Applying for too many loans at once
Every time you apply for a loan, then lender enquires about your credit score. If you make multiple loan applications, multiple queries would be done. Multiple queries on the credit score within a short span of time is an unfavorable indicator. This has a negative impact on your credit score and reduces it.
- Cheque Bounce
Cheque bounce or dishonor of cheques has disastrous effects on your credits core. Besides incurring legal penalties on you, cheque bounce also kills your credit score drastically.
- Not reviewing your score regularly
You should make periodic assessment of your credit score to monitor it and, if required, improve it. If you ignore the score and don’t review it you would not be able to track and build your score, a practice which helps you in maintaining the score. As a result, your score suffers.
Know these common mistakes and avoid them at all costs if you want to maintain your credit score. Having a good score improves your chances of availing loans and so you should always try and have a good score.