Thursday, 14 September 2017

5 Stupid Things you’re Doing to Ruin Your Credit Currently

Credit score reflects how we have treated our debts in the past and what our attitude has been towards credit in general. So not only our EMI and credit card payments but the overall credit behavior is taken into account when the score is calculated.  Credit rating can be negatively affected due to deliberate defaults, negligence on the part of the borrowers, some errors that may occur due to oversight or some oversights. There may a few aspects that an individual may ignore at the cost of ruining his score. Here are few that we focus on here today.
1.       Excess Swiping of Your Credit Card
When someone applies for a credit card; he/she is issued a card with a specific credit limit. This credit limit is important as the usage per card or for all cards is measured as a proportion of the sanctioned limit per card and overall too. This determines the credit utilization ratio for the individual. While using the credit card the user may assume that as long as he/she pays the bill on time and the usage remain below the sanctioned limit, there will be no problem for the user. However think again, excessive use of cards which means using more than 30% to 35% of the sanctioned limit could spell trouble even if you do pay on time. If you are looking for a way to increase credit score then keeping a low utilization ratio is a good idea.
2.       Settling an Old Debt
This may also happen due to the ignorance on part of the borrower. Sometimes one may have an overdue debt in their CIR which may be raising red flags every time a prospective lender looks at it. Well the borrower may assume the best thing is to settle it; not so! Settling an old debt means not paying the entire amount due but paying lesser than that (due amount) as per the agreement reached between the borrower and the lender. Whenever a borrower decides to pay old dues they should negotiate with the lender to report the repayment of the debt as “paid “or “closed” rather than reporting it as “settled”. A settled debt is not good for the credit rating.
3.       Guaranteeing a Loan without Being Sure:
Another stupid mistake that could cost a dip in the credit score is guaranteeing a loan without being sure what it implies for the credit score or not being sure about the credentials of the borrowers. There may be times when getting a personal loan without CIBIL Score, or a home loan without the required documents and so on may not be possible. In such a scenario the applicant may consider getting someone with a better score or better credentials to guarantee a loan. While it may be come as a relief to the borrower as he/she can have access to credit it may not be so for the guarantor. Guaranteeing a loan reduces the guarantors borrowing capacity and any defaults by the borrower will also impact the credit rating of the guarantor without them being at fault at all.  
4.       No Credit at All:
Gone are the days when no credit meant a good thing! So while taking a loan just for the sake of creating a credit trail might not be such a good idea using credit cards could solve this problem to some extent. If you have credit cards and you do not use them thinking that no credit is a good thing then it’s time to change that. Small regular transactions with dues paid on time set a healthy credit trail which is a good thing for the credit rating.
5.       Making too Many Credit Inquiries:
Credit inquiries made by a financial institute before accepting her/his application for credit are included in the CIR of an individual. Hard inquiries are amongst the five factors that are at taken into consideration when calculating the credit rating. So when applying for a loan be sure about the requirements and eligibility criteria so that the application is not rejected. An application being rejected will lead to the applicant applying elsewhere thereby resulting in another hard enquiry. Making unnecessary credit inquiries is also not advisable. 

So stay credit healthy, follow simple rules to staying credit healthy and avoid the above mistakes which can cause your score to dip.

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