Often people are surprised to think that they are paying every EMI and credit card bill on time, yet their credit score is stuck around 500. Neither loan is available easily nor banks are ready to give better interest rates. The truth is that just making payments on time is not enough. There are some small habits which keep damaging your credit score without you realizing it.
Many people believe that it does not matter if the bill is late once or twice. But every late payment is recorded in the credit report. If ever the EMI or card bill is due after the due date, its effect remains on the score for a long time. If this happens again and again, banks consider you a risky customer. It is better to set a mobile reminder or keep auto-debit on, so that not a single payment is missed.
excessive credit card usage
Suppose your credit limit is Rs 1 lakh and you spend Rs 70-80 thousand every month. Even if you are paying the full bill, banks still consider it a sign of financial stress. According to credit experts, using less than 30 percent of the total limit is considered safe. High utilization indicates that you are more dependent on loans, due to which the score starts decreasing instead of increasing.
Ignoring settlements and old dues
Many people think that the matter ends after loan settlement or write-off. Whereas the reality is that the tag of settlement appears negatively in the credit report. Similarly, any old dues, no matter how small, keep dragging the score down. Clearing old dues completely and getting the report updated can be a big step towards improving the score.
Repeatedly applying for loan or card
Every time you apply for a loan or credit card, the bank checks your credit report. This is called hard inquiry. Due to high number of inquiries in a short period of time, the bank feels that you need money urgently. The result is that the application gets rejected and the score goes down further.
Lack of healthy credit mix
If your credit report shows only past defaults and no active loans or cards, banks may not be able to understand your current behavior. Taking out a small personal loan or a low limit credit card and managing it responsibly strengthens your profile. Due to this gradually the score starts showing improvement. A credit score of 500 or less is not a permanent punishment. This can be improved by adopting right habits and keeping some control on expenses and payments. Be patient, because credit score does not increase overnight, but taking steps in the right direction can definitely make a difference.
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