A credit score is a three-digit number that reflects how responsibly you manage borrowed money. It influences future loan approval, interest rates, and other lender policies. Many everyday habits can unknowingly damage your credit profile. Understanding these mistakes helps protect your financial health.
In this blog, we will discuss 13 factors that can ruin your credit score in your day-to-day life. Read on to know more!
Top 13 Factors Affecting Your Credit Score
Below are the 13 most common habits that secretly ruin one's credit score:
1. Missed or Late Payments
Your payment history is one of the most important factors in calculating your credit score. Even a 30-day delay can harm your score. To avoid this, make timely payments by setting up auto-payments or reminders before the due date.
2. High Credit Utilization Ratio
The percentage of the amount used from the maximum available credit limit is the credit utilization ratio. Using too much of your available credit increases your risk level in credit scoring models.
Experts recommend maintaining a credit utilisation ratio below 30%. For example, if the individual's maximum credit limit is Rs. 1 Lakh, then they should use Rs. 30,000 or less.
3. Lack of Longer Credit History
If an individual has no credit history, their credit score will be -1 (or NA/NH, "No History"). On the other hand, a person with a minimal credit history (less than 6 months) will have a credit score of 0. This is because the credit bureaus have less data to prepare a credit profile. You can get a credit card or a small Personal Loan and maintain a good repayment history for an excellent profile.
4. Using the Full Limit on a Single Credit Card
When someone uses a large portion of the limit on a single credit card, it may seem normal. However, lenders view it as a sign of financial stress. Try distributing your spending across multiple cards instead of relying on just one.
5. Multiple Loans or Credit Card Applications
Every time an individual applies for a loan or credit card, credit bureaus add a hard inquiry to their credit report. A lot of inquiries in a short time may indicate poor money management skills. Therefore, apply for credit only when it's necessary.
6. Getting Your Account Sent to the Collection Team
The lender may assign your account to a collection agency if your credit obligations are not paid for an extended period. The credit bureaus are notified whenever this occurs, and it may remain on your credit report for 7 years.
Try to pay any outstanding balances to the lender immediately before the account goes into collections to avoid this negative impact.
7. Bankruptcy or Court Cases
If there is a court judgment against you or you file for bankruptcy, your credit score can drop significantly. Credit bureaus record these entries, and they typically remain on your credit report for 7 to 10 years, depending on the type of entry.
Seek guidance from a credit counsellor before considering bankruptcy, and ensure there are no unresolved court cases against you.
8. Closing Old Credit Cards
When an old credit account is closed, the long-term credit history associated with it stops contributing to your credit profile. This may cause your credit score to drop, as credit scoring models value longer credit histories. To avoid this, don't close your oldest credit cards; use them occasionally to keep them active.
9. Inconsistent CIBIL Report
If a person changes their name and does not inform lenders, their old accounts and documents will continue to reflect the previous name. This will lead to data mismatches. Credit bureaus may treat this as a different individual, causing the existing credit history to be lost or not linked correctly.
As a result, the CIBIL report may show incomplete or inconsistent information. Since a credit score relies on accurate, up-to-date CIBIL data, inaccurate or outdated data can negatively impact the score.
10. Inactive Credit Card
Credit card issuers may close accounts that remain unused for several months. When this happens, your overall available credit limit reduces, which can increase your credit utilisation ratio and negatively impact your score. To avoid this, make small purchases on each credit card from time to time to keep the accounts active.
11. Lack of Credit Mix
Lenders and credit bureaus generally prefer a healthy mix of credit types, such as revolving credit (credit cards) and instalment loans (Personal Loan, Auto Loans, etc.). Having only one type of credit may limit your credit score potential. However, you should take additional loans only if you genuinely need them; do not borrow solely to improve your credit score.
Also Read: How CIBIL Score is Calculated | A Step-by-Step Guide
12. Ignoring Credit Report Errors
Sometimes, lenders or credit bureaus may enter incorrect information in a credit report. Late payments or high credit card balances that never happened may be mistakenly added. Regularly check your credit report and promptly dispute any errors with the credit bureau.
13. Identity theft
If someone else uses your credit card and leaves the bills unpaid, it can ruin your credit score. In case of theft, take quick action. Watch for credit alerts and use fraud alerts or credit freezes when needed.
Also Read: How to Improve CIBIL Score to Get a Loan at Lower Interest Rates?
To Conclude
Maintaining an excellent credit score requires consistent financial discipline. Make timely payments, maintain a low credit utilisation ratio, avoid unnecessary credit applications, and review your credit report often. Further, staying alert helps protect your credit health and improves your chances of securing loans at better interest rates.
If you’re planning to borrow funds, start by checking your free credit report with a trusted lender like Poonawalla Fincorp.
FAQs
Which habits affect your credit score the most?
Missed payments and high credit utilisation have the biggest impact. These factors influence your payment history and available credit, both of which are crucial to credit scoring models.
How often should I check my credit report?
Check your credit report every few months. Regularly checking helps you catch errors early and maintain better credit health.
Does closing credit accounts reduce your score?
Yes. Closing accounts reduces your available credit and shortens your credit history. Both can negatively affect your credit score.
Can new credit accounts affect my score?
Yes. Opening a new credit account or making frequent credit applications can result in hard inquiries, which may temporarily lower your credit score.
How can I quickly improve my credit profile?
Maintain low credit utilisation, make on-time payments, correct credit report errors, and build a healthy credit mix to improve your credit profile.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply