Your credit score is one of many important indicators of your financial health. Instead of following bad credit practices, itโs crucial to develop good credit habits to build and maintain a good credit history. A good credit score is crucial since it ensures that a person can obtain auto loans, mortgages, and education loans, among other things.
Most of the experts say that if you want a smooth loan approval process, you should have a credit score of at least 700. In general, a credit score represents your responsible behavior. According to recent studies, it has been found that even responsible people do not always have a good credit score. The following are some of the most common credit mistakes that can hinder your growth and even severely damage your credit score.
OVERUSE OF SINGLE CREDIT CARD
Many people make all of their monthly payments using just one credit card. However, experts say that using only one credit card for all transactions will damage your credit score because of the high level of credit utilization (percentage of credit being used). Based on a recent study, customers with credit scores above 770 have an average utilization rate of roughly 5.5 percent, while those with scores below 600 had an average utilization rate of 77.1 percent.
A high utilization rate indicates that a person has little control over his or her spending. Second, different credit card companies estimate credit limits based on an individualโs income. Banks presume you have too much debt if you use too much credit. To improve your credit utilization, you need to increase your credit limit or apply for a new credit card.
FAILING TO PAY BILLS ON-TIME
Your payment history has a significant impact on your credit scores, so even missing one payment might damage your credit. If you have a late payment on your credit report, it will stay there for seven years. While the impact on your credit score may reduce over time as fresh positive information is added, it can nevertheless hinder your credit growth for the duration of its presence.
To ensure you pay all of your bills on time, request payment reminders from your lenders or set up autopay through your lender or bank account. Always make sure you have enough money in your bank account to fulfill your monthly expenses.
TOO MANY INQUIRIES
If you make too many inquiries for personal loans, auto loans, and other types of loans in a short period of time, it indicates that you are credit hungry, which banks donโt seem to like. As a result, there must be a healthy space between inquiries.
Individuals who are overly reliant on credit will have their ability to repay questioned by banks and financial institutions. Experts say that keeping inquiries to a minimum is the greatest approach to boost your cibil score. Itโs important to remember that a two-month break between loan applications will keep your credit score from dropping.
NOT CHECKING YOUR CREDIT SCORE ON A TIMELY MANNER
Monitoring your credit score is a good approach to maintain track of your progress as well as identify any problems and correct them before they do major damage. You get complete access to your credit record and score. In most cases, you can get a free copy of each of your three credit reports once a year.
Many sources, like CIBIL, Transunion, and Equifax, offer free credit ratings that are updated on a regular basis. Look for issues in your credit report that has the potential to damage your credit score or are actually doing so as you analyze your credit health then you can repair them fast.
OPTING FOR SETTLEMENT INSTEAD OF CLOSURE
When there is a payment dispute, most of people make the common mistake by opting for settlement. As a result, banks mark such instances as โsettledโ in CIBIL reports, which can ultimately create an adverse impact on an individualโs credit score.
According to expertsโ advice, avoid choosing settlement, instead opt for account closure. An account due can be cleared by making 100% payment. Customers can contact the advocate in the event of a disagreement. In the long run, however, reaching a settlement with any bank will do more harm than good.
WRAPPING UP
Building credit takes time. It can take years to raise your credit score to the level you desire. While this may appear daunting, taking efforts such as frequently monitoring your credit report and score, paying your payments on time, keeping credit card balances low, and avoiding debt that could put a strain on your budget will assist you to improve your credit score.
The faster you adopt these habits and prevent the above-mentioned credit mistakes, the easier it will be to sustain them over time. Youโll reap plenty of benefits as you establish and manage your credit history, including lower financing costs, lower auto, and homeowners insurance rates, and more.
