Building a good CIBIL score is the first step to become credit ready in future. Whether you want to plan a vacation with a family, fund your kid’s education, buy a new house or a car, CIBIL score is the first thing that determines the availability of credit for you.
A good score reflects good financial discipline of years. But sometimes, your CIBIL score tumbles down for no fault of yours. This highly deteriorates your future prospects for lending. It is thus imperative that you avoid these credit mistakes and maintain a good score.
Common Credit Mistakes To Avoid To Have A Good CIBIL score
Not checking your credit report as often as required
Most people believe that by repaying their bills and EMIs on time, they are doing their best to increase CIBIL score. They never study their credit information report. However this is not the right approach. When you do not study your report at all, you are providing a safe haven to cons. In such situation it is more likely that you would come to know about the loss only after an identity theft is made.
Every time a loan inquiry is made or a card is applied, it is reported to CIBIL. Studying your CIBIL report enables you to check if all the information is genuine on your report. By checking your report on time, you can raise “Dispute” with CIBIL for every suspicious activity.
Exploiting maximum credit limits
After repayment, credit utilization is the second most important factor that affects your CIBIL score calculation. You should make sure that you do not use a majority or all of the credit limit every month. As a thumb of rule, you should not use more than 30 per cent of the credit card limit. When your credit utilization is more it hurts your score.
Using credit cards mindlessly
Most people use credit cards for shopping as it brings convenience and flexibility to their lifestyle. It is common to use the roll over facility of a credit cards to transfer the balance on to the next month.
However, while using these benefits of plastic cards you forget that credit cards levy high interest rates. When you roll over balance from one month to another you pay a huge interest every time. Plus, balance on your card shows credit utilization which would keep the credit utilization high every month thereby not letting you either borrow or score more.
Loan tenure doesn’t mean lower payments
It is a common mistake when you consider contraction of EMI by stretching up the tenure of loan. This brings only virtual relief. Although interest rate offered for longer tenure is generally lower but when you consider the total cost of loan you would come to see the real picture.
The total cost of loan in long term would be much higher than short term. Besides; as long as you have a loan, your debt to income ratio would be high and you would not be able to apply for more loan.
Closing your oldest credit card account
The length of your credit history is another factor that helps your score. These days, banks keep on offering credit cards for various functions and it is too common to have multiple credit cards. With accumulation of new cards, many old cards become redundant and you stop using them.
However whenever you close the additional cards it is important that you do not close the oldest card with positive history. The oldest card is the most precious gem you have. By canceling the oldest card, you would cease the past record of your good history and damage your score.
Credit Hungry behavior
Your credit information report is a direct reflection of your financial habits. Whenever you apply for a credit card or a loan, the bank reports it to the credit bureau. If you apply for too many loans frequently, it reflects your credit hungry behavior. The report shows that you are in dire need of funds and the sudden increase in credit queries is looked at suspiciously. The credit hungry behavior affects the score adversely.
Last but not the least, the length and mix of your loans also affect your score. As, too many unsecured loans are negative for your history as are multiple new loans and credit cards.
All in all, by avoiding these common credit mistakes you can have a good CIBIL score.