Many of us have been using multiple credit products, repaying loans, paying EMIs, etc. Even though we think that all our credit products are managed well, but due to some mistakes or lack of awareness, our credit score gets negatively impacted. Building a credit score is a time-consuming process, therefore, it is advised to avoid mistakes and be cautious while availing a lending product
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Let us talk about a few common mistakes that can lower your credit score:
Mistake 1: Delayed or Missed Loan/Credit Card Payments
Missed or delayed loan repayments or credit card EMIs have a negative impact on your credit score, as all the credit bureaus take a note of your payment history while generating your credit score. Generally, one or two missed payments will not hamper your credit score a lot, but if delayed or missed payment is quite regular then it may lead to a significant dip in your credit score.
Mistake 2: Maintaining High Credit Utilization Ratio
Your spending pattern also impacts your credit score. Too much dependability on credit makes you a vulnerable customer. Lenders have this impression that the borrower with high credit utilization may have difficulty in repaying the money. Using multiple cards can definitely balance out the expense burden from a single card.
Mistake 3: Submitting Multiple Loan Applications Simultaneously
Multiple loan applicants appearing on your credit report can be accessed by any financial institution you choose to avail loan from. This practice leaves a negative impact on lenders which also results in lowering your credit score and moreover your negotiating options get reduced.
Mistake 4: Closing Old Active Credit Cards
Closing your oldest account will lower the tenure of your credit accounts, thus may hamper your credit score. Also, closing your old accounts will decrease your overall available credit, thereby disturbing your credit utilization ratio. Hence, customers should not close their old accounts as their accounts showcase their long association with the lenders that customers have operated and managed accounts for a longer duration.
Mistake 5: Not Reviewing your Credit Report
Customers availing loans or credit cards and making payments generally assume that their credit score is good and well managed. However, there could be some errors or inaccuracies appearing on the credit report which might be lowering your credit score. Performing a regular check on your credit report is very important and even more crucial before applying for any loan or credit card. Errors may occur on the part of credit bureaus, as sometimes lenders fail to provide the updated information if in case you have changed your address or name.
Know More About: 4 Top Reasons To Check Your Credit Score Regularly
Mistake 6: Co-Signing Loans
It’s always appreciated when you co-sign a loan for your close acquaintances and get them out of the financial crunch. However, it becomes a hassle for you if the borrower misses some payments or makes late payments. Due to this, your credit score gets impacted negatively.
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Mistake 7: Availing Numerous Unsecured Loans
No collateral is required if you avail unsecured loans such as personal loan, education loan, credit card and business loan. Unsecured loans are granted on the basis of an individual’s income and expenditure behaviour apart from credit score. If an individual avails multiple unsecured loans, it is evident that he/she is already under too much debt and makes the person at risk. A number of active unsecured loans can impact his/her credit score negatively.
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