Bad Credit Practices that Lead to Bad Credit Score

Having a good credit score opens your window to premium credit cards, better loan offers and affordable interest rates. On the contrary, with a bad credit score, your loan/credit card application is likely to be rejected. Take a look at some bad credit practices that lead to a poor credit score in the article below.

What is a Bad Credit Score?

Bad is a relative term and hence, it is better to use the term, a ‘low credit score’. Your credit score ranges from 300 to 900. If this number is going further down from 650, you need to evaluate your credit health. However, this number varies from one credit bureau to another.

Rating	Credit Score*
Excellent	770+
Good	650 – 770
Needs Improvement	Below 650

*Ratings of one credit bureau are different from that of the other. Thus, you should consider these scores as indicative numbers only. For exact rating, you should check your credit report generated through Paisabazaar.com.

What leads to a bad/low credit score?

Check the table below to understand the good and bad practices that can affect your credit score: 

Good Credit Practice	Bad Credit Practice
Timely payment of credit card bills and/or loan EMIs	Delayed or missed payments
Low credit utilization (Using 10-15% of the total credit limit)	Too much credit usage quite often (Credit Utilization Ratio of more than 30% of the total credit limit)
Checking credit report regularly	Rare credit score and credit report checks
Paying off debt soon	Moving around debt payments or applying for a new credit card/personal loan to pay the existing credit card bills
Opening credit account only when absolutely necessary	Opening multiple credit accounts only to build a credit history and missing out on payments

Also Read: How to Increase your Credit Score?

How will a Bad/Low Credit Score Impact you?

A bad or low credit score may impact you in multiple ways as mentioned below:

• Many lenders that provide loans at relatively low interest rates may not even consider your loan application if your score is below 750. You would miss out on these reputed lenders. Instead, you may have to opt for lenders that specifically provide loans to applicants with a low credit score. But they charge high interest rates on such loan schemes.
• Many lenders will most likely give you a loan at a higher rate of interest which means you will end up paying more than someone with a better credit score, say 750 or more, for the same lender. This is because banks and other financial institutions may view you as a risky customer and thus levy heavy interest to counter the risk factor.
• You may not be able to access premium credit card benefits and offers. When your credit score is high, you are given good introductory and/or cashback offers. You may also get a higher credit limit on your credit card. A bad score may make you miss out on all these.
• You may have to pay a higher insurance premium. Nowadays, some insurance companies check your credit score to see how reliable you are with timely payments. If you’re paying your credit card bills and/or EMI payments on time, it will improve your credit score. This will in turn make the insurance companies confident of your premium payments in time.

In a nutshell, it is advised to keep your credit score as high as possible. To tackle such a situation, use less than 30% of your credit limit and always pay your dues on time. Also, do not apply for multiple credit cards and/or personal loans in an arbitrary manner. These factors shall definitely help maintain a good credit score. 

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