Missing even a single EMI deadline can lower your credit score significantly and it might take a long duration to make up for that loss.
Apply for a loan or credit card only if it is necessary or in an emergency.
A credit score is a number that determines one’s ability to repay the credit on time. In other words, it is proof of one’s creditworthiness.
Anurag Sinha, Co-founder and CEO, OneScore and OneCard, says, “Before extending any form of credit, a potential borrower’s credit behaviour is thoroughly analysed by credit bureaus and the score is given out of 900.” A credit score greater than 750 is considered to be healthy.
Multiple factors have a bearing on one’s credit score such as;
- Past credit repayments – Whether it is your housing loan EMI or your monthly credit card bills, timely payment is critical to ensure a high credit score.
Sinha says, “Missing even a single EMI deadline can lower your credit score significantly and it might take a long duration to make up for that loss.”
- Credit utilisation – If you tend to splurge and exhaust your credit limit every month this will significantly impact your credit score. While using your credit card, you may want to grab the best offers and cashback which is rewarding, however, paying your dues on time should be treated as sacrosanct.
“Over utilising your credit limit every month denotes that one has the habit of living life on the edge and it can lower one’s credit score,” points out Sinha.
- A number of hard inquiries – Every time you apply for a new loan or any credit product, banks or financial lenders will pull out your credit file to check on your credit score with one or more credit bureaus. This Sinha explains “is recorded as a ‘Hard Enquiry’, and too many of such hard enquiries can cause one’s credit score to drop, besides it will also lower one’s ‘credit age’.” Hence, apply for a loan or credit card only if it is necessary or in an emergency.
- Credit mix – Building a mix of different credit products, is advised as it can play a significant role in improving your credit score while building a good credit history for you. For this, Sinha explains, “one can avail of a mix of secured and unsecured loans, credit cards, credit line products and so on. A healthy credit mix showcases one’s stability and aptitude to manage credit responsibly.”
- Delaying reporting discrepancies – Many times even after adhering to all the good credit practices, some errors can lower your credit score. Nevertheless, experts say with the right measures, those discrepancies can be sorted. However, “not reporting those discrepancies in time can lower one’s credit score significantly and revival may take a lot of time,” points out Sinha.
- Scraping older credit cards – While you upgrade your cards to better and premium ones, closing your older cards can affect your score negatively. “Older credit cards demonstrate one’s ability to handle credit maturely and prove his/her consistency,” adds Sinha.