Finances play a pivotal role in everyone’s lives, and every individual intends to manage them impeccably. The best way to check whether you have been successful at doing so is a CIBIL score. Your credit score represents your capability to meet your credit obligations.
Your CIBIL score can affect how much loan you can get, your credit card deals, and loan offers. That is why it is important to check your credit rating before applying for a loan. As people understand the essentialness of their credit score, they ensure it does not deteriorate.
However, some factors affect the CIBIL score, and the masses are unaware of them. When people raise concern regarding their credit score, they generally look for ways to improve it. But that is only half of it.
To reach a high CIBIL score and maintain it, you must also account for factors that can harm it. But how can you know about them? How can you ensure your credit score does not deteriorate without your knowledge?
By keeping the mentioned factors in check. Here are the top 10 things that can negatively affect your credit score:
10 Factors That May Deteriorate Your CIBIL Score
Co-Signing a Loan
There are cases when your financial position is stable, but lenders will not offer credit to someone close to you. Under such scenarios, it is viable for you to lend your help as a guarantor or by co-signing the loan. This makes you jointly accountable for the loan, and if the other person is not being timely on the repayments, your credit score will take a hit.
It will not be reduced if you are keeping up with payments on behalf of the other party. However, if they fail to notice you regarding even one missed payment, your CIBIL score will be affected negatively.
Skipping the Rent
Timely making payments like rent and medical bills might not directly improve your credit score. However, that does not mean that you can keep skipping them without letting them hurt your CIBIL score. If you are not keeping up with the due dates, the landlord may decide to contact the credit administrations.
Even worse, a collection firm might get involved, resulting in the credit administrations finding out. Keep up with your rent payments as the opposite can cause your CIBIL score to nose dive.
A High Credit Usage Ratio
One of the best steps to take to improve your credit score is moderating your credit usage ratio. The ratio refers to the used credit amount in proportion to your available credit limit. As per the consensus, you should refrain from exceeding 30% of your available credit limit.
In case you possess a credit limit of 100 GBP, and you withdraw over 30 GBP, it will convey a bad message to the lenders. Every lender takes a keen look at your credit usage, so try to not get into high credit exposure practices.
Frequent Late Payments
This one is a given and is the reason behind the majority of the bad credit scores in the industry. If you fail to pay your due credit payment on time, any potential lender might flag it. Even if it is a day late, the lenders will not perceive it as such.
Late payment tendencies are a big turn off for every lender. While two or even three late payments may not directly affect the credit score, you must avoid the practice altogether. There are times when you must delay the payments, and if you have already done so previously, it will greatly hinder your CIBIL score.
Opening Multiple New Accounts
This one might come off as a surprise, but opening multiple new accounts can affect your credit score too. It does not matter even if your accounts do not have any overdraft or if it is a mobile contract. If you are opening several accounts within a short span, your credit score will be hindered.
However, if you refrain from taking any credit cards, loans, or store cards from the accounts, the score will go back to normal within three to four months. But you should avoid such happenings altogether to ensure your credit score is maintained.
Discarding Traffic Fines
Yes, discarding your traffic tickets can hinder your credit score. It can result in the state agencies adding overhead penalties on your ticket. Under some circumstances, it can also involve collection agencies and credit bureaus.
Even if it is a ticket from another state, they still have your license plate number. Therefore, it is pivotal that you pay your traffic fines ASAP.
Closing Off an Old Credit Card Account
The further your positive credit card history goes, the better. An old credit card account shows the lenders that you are reliable and indulge in healthy credit practices. However, when you close the account, your entire credit history goes into thin air with it.
It will most likely affect your CIBIL score as well. Therefore, if possible, refrain from closing your old credit card accounts.
Owning Multiple Credit Cards with No Loans
One important factor affecting your CIBIL score is your accounts’ diversity. The types of credit cards you use accounts for approx. ten per cent of your CIBIL score. It may not appear much on the surface but can cause a severe difference.
Credit bureaus look at different accounts like instalment, resolving, and mortgage to gauge your capabilities. The diverse your credit portfolio is, the better.
Numerous Credit Inquiries in Close Succession
If you indulge in multiple credit inquiries in a short period, it sends a bad message to the lenders. It gets worse if your credit application is rejected. So you must keep some gap between your inquiries.
If you must apply for credit in the upcoming year, you can try to restrict your credit lines and account applications.
Frequent Credit Card Balance Transfers
Transferring your credit card balances do not hinder your CIBIL score generally unless you do it more often. A credit report showcasing frequent credit card balance transfer is not healthy, so try to avoid it.
There is a good chance that you did not know about the mentioned factors beforehand. Now that you do, you can easily moderate your CIBIL score. Try to keep every factor in check so that your credit score does not fluctuate much.
Try checking your report every four to six months to see how you are doing in the market. If something seems out of the ordinary, try identifying the issue and fix it and enjoy a healthy CIBIL score.
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