Unexpected things that can wreck your credit score
A credit score is a statistical report that determines your credit worthiness for lenders when you drop in an application for a loan in their institution. It is also one of the most important aspects that can add value to your financial life.
You probably know that there are a number of factors that affect your credit score, say for instance, your repayment history, debt, and new credits. But did you know that there are other unexpected things that affect credit scores?
If you are having trouble with maintaining your score, look for tips to improve credit score, because even some of silliest stuff can bring you trouble. Below are a few surprising things you didn’t know that affect your credit score:
- Not Having a Credit History
You may think that if you haven’t had any need to borrow a loan, your credit score will turn out to be good. But CIBIL scores do not work that way. One can only have a good credit score if they maintain a good balance with their loans and repayment which reflect on their personal credit report. But if you haven’t had any loan to repay, you will end up with a really thin credit file, which makes lenders wary about offering you financial support. Several NBFCs like Bajaj Finserv, provide instant Personal Loan with online approval within minutes.
- Taking Credit You Don’t Need
Remember those calls from random banks ready to offer you instant loans when you aren’t even looking for one? Steer clear from them. Because every time you accept a loan offer such as that, your credit score takes a hit and it reflects negatively on your cumulative scores. The point here is, every time a lender makes a hard enquiry about your financial history with the credit board, you score goes down a tad bit. So weigh your decision carefully before diving into a loan.
- Getting Rid of Unused Credit Cards
It’s acceptable for you to think there is no use for that old, unused credit card in your wallet. But finance is a funny business and there is this mechanism called debt-utilisation ratio which calculates your credit score based on the credit available to you and the credit you use. If you keep this ratio as low as possible, it can add up to 30 % on your report which automatically improves your score. But in case you are looking for a credit card, several lenders like Bajaj Finserv can offer you smarter alternatives.
Here is an easy example: You have 3 credit cards—A, B and C—with varying limits. A has a limit of INR 10,000 with 50% remaining, B has a limit of INR 5000 with 100% remaining, and C is maxed out on its INR 2000-limit. Collectively, you have spent INR 7000 out of INR 17000. So in total and have utilised 41% of the credit available. Consider if you decided to get rid of card B because you rarely use it, the utilisation rate jumps to 58.3%, which will negatively impact your credit score.
So whenever you are about to take a major decision about your financial life make sure to weigh your options carefully. Make the right moves and lenders will scramble to extend your lines of credit.