Meta title: Mistakes that can decrease your credit score
Meta tag: How to avoid mistakes that can decrease your credit score when you apply for a business loan, a quick business loan or a business loan in India.
Mistakes That Can Decrease Your Credit Score
Many people do not understand that unwanted financial activities affect credit scores. Several people think their credit rating is poor when bank authorities deny them a loan or other financial assistance because of their low credit score. An Indian corporation called TransUnion CIBIL (Credit Information Bureau India Limited) Limited provides credit information.
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| Mistakes that can decrease your credit score |
An applicant with an appropriate credit score will have an easier time getting a business loan approved and will have a bigger credit limit than someone with a lower credit score. The need of the hour is that you need to maintain it. The credit score is a significant rating provided by the credit information bureau that determines a person's creditworthiness.
There are scenarios or frequent errors that might lower a person's credit score. Due to ignorance or poor instruction, any action taken by the person may lower their credit score without them knowing it. It is advisable to avoid mistakes when obtaining a business loan, financial assistance or online business loan because establishing a credit score is a time-consuming technique.
Let's discuss a few common errors you can make that will harm your credit score.
1. Inability to pay the business loan EMIs or credit card dues
Because all credit bureaus keep track of your payment history, if you fail to make or delay loan repayments or credit card payments, then your credit score suffers. One or two late payments won't influence your credit score. Delayed or regularly missed payments may lead to a dip in your credit score.
2. Maintaining a high credit use ratio
Your spending pattern also impacts your credit score. Your dependability on credit makes you an accessible customer. A bank or lender is concerned that consumers who use excessive credit may have difficulty repaying the loan. The utility of many credit cards can reduce the expense load of a single card.
3. Applying for loans from MSME or from MSME business loans
Your credit report can show that you have applied for loans from several financial institutions. This system harms lenders and bank officials, resulting in a lower credit score and fewer negotiating options. Whereas, a well-maintained credit score is a consequential rating provided by the credit information bureau that determines a person's creditworthiness. You have to maintain and develop your credit score regularly. It is a useful tool of a credit information bureau such as CIBIL that determines your creditworthiness. When you apply for MSME loans or any other type of business loan, you build trust.
4. Closing old but active credit cards
You may lower your credit score by closing your oldest account, which will support the tenure of your other credit accounts. Additionally, closing your old record may reduce the amount of credit accessibly and hamper your credit use percentage. You may note that customers should not close their old accounts as their accounts indicate their long association with the lenders. It shows that you have operated and managed accounts for a long time.
5. Failing to report fraudulent charges on credit cards
Loan applicants and credit card holders usually assume that their credit score is good when they make regular payments on loans or credit cards. You may need a proper check on your credit report, which is crucial and even more crucial before applying for any loan or credit card. Credit reports may contain some inaccuracies, resulting in a lower credit score. Credit bureaus can make mistakes, as lenders may not update their records after you have changed your address or name. If there is any fraudulent or erroneous levy, it has to be reported by the cardholder immediately. Failure to do so will mean the cardholder has to pay an extra amount than what is due. Nonpayment or postponement of payment of such erroneous or fraudulent charges without reporting or explanation will adversely affect your credit score
6. Co-signing loans or business loans
Bankers or NBFCs will always appreciate it if you co-sign a loan for a friend in need. However, it becomes a dispute for you if the borrower misses some payments or makes late payments. The impact is a decrease in your credit rating.
7. Availing of numerous unsecured loans or business loans
Personal loans, student loans, credit cards, and company loans are not subject to a collateral requirement. Multiple unsecured loans can indicate that a person is already heavily in debt, which increases financial risk. Aside from credit scores, authorities consider unsecured loans to be granted based on income and spending habits. Thus, several unsecured loans may lower the detrimental effects on a customer's credit score.
8. You fail to pay your government's applicable taxes.
The government is not the only party affected by your failure to pay taxes. The government may impose a tax lien on your property if you owe back taxes, which could harm your credit report.
9. Making the only minimum credit card payment due
Cardholders are getting two different charges listed on their credit card statement. One represents the total amount owed for the preceding billing cycle, and the other represents the minimum payment required if the cardholder fails to pay the balance due. If the cardholder pays the minimum amount due, they may use the credit facility until the immediate credit statement is issued. Interest is charged to the cardholder on the unpaid debt from the previous month. In addition, paying only the minimum is detrimental to your credit score Credit scores are affected by this. Regularly paying your expenses is good, but only doing the bare minimum is not. It will raise your overall credit utilisation rate if you only pay the minimum balance.
10. Use of many credit cards
Multiple credit card applications or an excessive frequency of credit card applications lowers your credit score It demonstrates to bankers that a person in this situation needs a lot of credit to meet their financial obligations. Even if you pay your bills on time, having too many credit cards active at once doesn't seem like a good idea. Bankers or lenders can question what would happen if you have maximum out your cards, even though you may not be utilising all your available credit.
Conclusion:
A credit score is often a 3-digit figure used by lenders to determine if you qualify for a mortgage, credit card, or another line of credit and the interest rate charged. The rating reflects how credit-risky you are to the lender at the time of your application. It is wise to check your credit rating every six months. It helps when you need to borrow money in an emergency. It is also vital to know how your credit score can be affected. A score of 750 or higher is typically regarded as optimal by lenders like banks and non-banking finance companies (NBFCs). Higher scores may indicate that you pose a lower risk to bank officials or lenders.