7 Mistakes That Can Negatively Impact Your CIBIL Score

1. Not paying bills on time: The payment history is the most important factor that has a major effect on your CIBIL score. The repayment history accounts for 35% of your CIBIL score. Therefore, it is extremely important to pay all your bills or EMIs on time. Delay in paying bills or late payment of bills can bring your CIBIL score down. In order to make sure that your CIBIL score does not take a hit, set up reminders on your phone. Another option is to set up auto-debit facility on a scheduled date to pay your credit card bills. This way, you will not miss any credit card bill payments thereby maintaining your CIBIL score.
2. Maintaining a high credit utilisation ratio: A credit utilisation ratio is the percentage of the credit limit which is used by you at a given point of time. You should always maintain a low credit utilisation ratio if you want to improve your CIBIL score. This essentially means you should not max out your credit card limit and limit your usage. Several financial experts suggest that consumers should use only 30% of their total credit card limit. Your credit exposure accounts for 30% of your CIBIL score. If you have a high credit utilisation ratio, it will automatically bring your credit score down. Using the entire credit card limit indicates that you are not able to pay your bills on time and are unable to handle credit.
   

1. Availing several unsecured loans: It is important to maintain a balance of the type of the loans that you avail. Hence, it is advised to have both secured as well unsecured loans, as it will positively affect your CIBIL score. Multiple unsecured loans lower your CIBIL score while credit options like home loans will help you improve your CIBIL score. The type of credit accounts for 10% of your CIBIL score.
2. Making multiple credit inquiries: If you have just started using credit cards, it is better to stick with one at a time. Owning multiple credit cards can become overwhelming as you may lose track of expenses. Also, it becomes difficult to remember the payment due date of multiple credit cards. Therefore, it is ideal to not make multiple credit inquiries at the same time as several multiple inquiries can take a hit on your CIBIL score. It also makes your look as credit hungry. Credit inquiries account for 10% of your total CIBIL score.
3. Having no or low credit history: A credit history helps lenders understand how you have handled your credit over the years. Therefore, it is better to have a credit history. The length of the credit history accounts for 15% of your CIBIL score.
4. Not checking your CIBIL report: It is important to check your CIBIL report from time-to-time as it gives you an idea of your current credit status. Also, sometimes errors in your CIBIL report can bring your CIBIL score down. Your CIBIL report contains your personal information as well as details of all your credit. Any error in your credit account or duplication of credit accounts can impact your CIBIL score in a negative way.
5. Closing old credit cards: Your old credit cards could have a long credit history which you will lose if you close them. It is important to have a long credit history as it adds weightage to your credit card or loan application. Therefore, as long as it is possible, avoid closing old credit cards or credit accounts.

Disadvantages of a Low Credit Score

A low credit score has several disadvantages, few of them are as follows:

1. Loan Rejection: Rejection of a loan application due to a bad credit score is one of the major disadvantages of a low credit score. Banks and NBFCs check your credit score before approving your loan application and a bad credit score shows

1. Higher Rate of Interest: Some banks and NBFCs may approve your loan application even after a poor credit score, but they may charge a very high rate of interest. In such a case, your loan will be more expensive.

1. Lower Credit Limits: Your bad credit score projects you as financially irresponsible. The banks may offer you lower credit card limits due to your bad credit score and perceived risk associated with it.

1. Difficulty Getting Premium Credit Cards: Most banks offer premium credit cards or high reward cards to customers with a strong credit score. If you have a bad credit score, you may find it difficult to get a premium credit card.

1. Lower Negotiation Power: When you have a bad credit score, you lose the ability to negotiate better loan terms or interest rates. This means that you will have to borrow a loan at a higher rate of interest in times of need.

A good credit score can help you secure lower interest rates on loans and credit cards.

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