13 Things That Are Ruining Your Credit Score

Whether you are planning to purchase your dream home, open a new credit account, or approach a new investment, your credit score follows you everywhere. A good credit score opens various opportunities, but even a single missed payment can affect it. Here’s a list of 13 things that can ruin your credit score. Read on!

13 Mistakes That Will Ruin Your Credit Score

Here are the common mistakes mentioned that people make and end up affecting credit.

1. Payment History

Payment history is the first thing that a credit bureau investigates while determining your credit score. Payment history constitutes about 35% of a credit score. To maintain a good credit score, you must pay all your EMIs on or before the due date. A 30-day late payment may have a small effect, but exceeding 60 or 90 days would really hurt your score.

2. Racking Up Credit Card Debt Early in Life

Although it is important to have a good credit history, getting credit cards early in life with poor spending habits and utilising the entire credit can hurt the credit score. Missed and delayed payments stay on the credit report for as long as six years.

3. Length of Credit History

The length of your credit history impacts your credit score. The longer your credit history, the higher your credit score. Your ability to manage debts is measured by considering the age of your new credit account, the average age of all credit accounts, and the age of your oldest credit account.

4. Spending to Your Credit Limit

It is important to know your credit limit and spend accordingly. Avoid overspending to risk the consequences of using up your entire credit limit. It is advisable to keep your credit utilisation ratio to 30%. Spending your entire credit limit can hurt your credit score.

5. Applying for Multiple Credits at Once

When you apply for credit, a lender goes through your credit report, creating a hard inquiry. The credit report entails detailed information on accounts recently applied for, and timelines of accounts opened. Multiple hard inquiries will depict you as a high-risk borrower and will affect your credit score.

6. Borrowing Money Just to Boost Your Credit Score

Borrow money based on your needs, not just to build your credit score. To prove yourself creditworthy and boost your credit score, it is not mandatory to leave a hefty balance on your credit card. Small but careful use of credit over a long time can boost your credit score.

7. High Debt-to-Credit Utilisation Ratio

The debt-to-credit utilisation ratio helps to determine how much debt you have in comparison to your credit limits available. To maintain a good credit score, lenders and creditors typically prefer a lower debt-to-credit ratio, usually less than 30 per cent. Having multiple credit accounts reduces the average age of a credit account. It’s also difficult for beginners to manage multiple accounts.

8. Bounced Checks

If you consistently miss payments on time through a debit account, it raises your chances of getting noticed by a collection agency. This will affect your credit score and hamper your ability to obtain new credit in the future. Bounced checks result in a scenario similar to making credit payments lately. If you use credit cards or have ongoing loans, ensure you have enough balance in your bank accounts.

9. Not Intimating Creditors In Case of Name Change

Changing your name can be a daunting task as you need to go through a lengthy documentation process. Moreover, it could result in inaccuracies in your credit report. You have worked hard to build trust with creditors and build a reputation. Not alerting creditors on time might thus affect your credit score. Hence, whatever the reason behind changing your name, make sure to inform the creditor about it.

10. Cancelling a Zero-Balance Credit Card

Cancelling a credit card account reduces the credit available to you and shortens your credit history length. This may negatively affect your credit score. In general, creditors and lenders investigate various types of credit accounts you have managed over some time before approving any new credit. The older credit card accounts hold long credit histories. Moreover, lenders determine 15% of your credit score based on how long you have used your credit account. 

11. Credit Mix

Credit mix represents various credits you own, including store accounts, credit cards, mortgages, instalment loans and more. All these factors impact your credit score. Having several types of credit improves your credit health. Taking advantage of this, however, you should not opt for a loan and pay interest just to add it to the credit mix. This will overburden you with debt. The credit mix percentage constitutes a very small portion while determining your credit score.

Also Read - How CIBIL Score is Calculated | A Step-by-Step Guide

12. Ignoring Errors on Credit Report

Keep checking your credit report regularly to find out incorrect information, if any. Medical payments undergo a lengthy process before the final bill reaches you. There lies a tendency to make errors or provide inaccurate information. If you notice any errors in the report, make sure not to ignore it. Rather, connect with the credit bureaus and start the amendment process. This will prevent ruining your credit score.

13. Transferring Balances to a Single Card

Transferring your balance to a new card will increase your single card utilisation, lowering your credit length and adding a new hard inquiry to your credit report. A hard inquiry will affect your credit score and this stays in the report for two years or so. If you opt to open several new credit cards, it will affect your credit score. A gap of a few months between applications can prevent this.

Also Read - How to Improve CIBIL Score to Get a Loan at Lower Interest Rates?

To Conclude

The major factors contributing to ruining your credit score are late payments, frequent credit accounts frequently, and overspending. Avoiding these pitfalls will help you get out of debt. Pay your dues on time and control your debt usage to build an excellent credit score slowly but surely. This will open the door to new opportunities.

Disclaimer

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.
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