Credit cards are an invaluable tool for managing finances during times of cash crunch. Over the years, they have become an essential part of our lives, thanks to their convenient usage and simple repayment options.
Here are 10 things you may not even aware could hurt your credit score:
Your payment history has the greatest influence on your credit score. Keep in mind that 35% of your credit scores is the payment record of the borrower.
Constantly paying late your credit card payments will affect your credit score negatively. So, if you have more than one credit card, it is suggested to set up reminders in order to avoid delaying payments or missing them. Any missed or delayed payment reflects poorly on your credit score and it depicts that you are not at all a responsible borrower. That is why it is essential to pay your bills and EMIs on time every month to maintain a good credit score.
One of the main rules you should follow is to keep an eye on your credit utilization percentage. It is the amount of credit utilized in the proportion of the credit limit that is available to you.
If you are consistently hitting your credit limit, you become a liability to credit card lenders as it indicates you’re at a high risk of defaulting. Experts advised that you should not exceed using 30 percent of your credit limit.
Those people who keep their credit utilization ratio low typically have high credit score than those who max out their credit cards consistently. Thus, maintaining a low balance will not only help you to make payments on time but also helps your credit score.
To maintain a good credit score, you should always pay off your outstanding debts. When you’ve got unpaid dues reflected on your credit reports, it affects your credit score negatively. Henceforth, it is highly recommended to clear off your outstanding dues no matter the amount is small or big.
A minimum amount due is a small portion of the total outstanding amount every month. You may trap into debt if you consistently pay only the minimum amount due. Carrying forward the debt by paying only the minimum amount due causes your interest compound on the outstanding balance. Paying only the minimum amount due also depicts your poor repayment behavior which ultimately hurt your credit score. Therefore, it is advised to pay your credit card bills in full by the payment due date.
When you apply for a credit card, the credit card issuer will want to check your creditworthiness. They do the same by checking out your credit report. Making multiple credit or loan applications within a very short span of time will hurt your credit score as it will make you look credit hungry.
And if your credit or loan application has been declined very recently, it is suggested to not apply for any credit immediately. It is advisable to take some time to improve your credit score and then apply again when you have a good credit score as the chances of approving your credit application is higher.
A credit report is something that carries a detailed record of your current and past credit accounts. If there are any errors found in your CIBIL report then it can significantly hurt your credit score. So, if you find any sort of discrepancies get them rectified immediately to preserve your credit score.
Credit cards are indeed a great way to build up a credit history. Whenever you close your old credit card accounts, you end up losing a long credit history that is associated with it. Henceforth, if you’ve used the credit card for a substantial number of years, it is highly suggested to keep the account open as long as possible (if it is feasible for you). Alternatively, you can close a credit card that is relatively a new one.
When you close a credit card that still has an outstanding balance, your credit limit drops to AED 0 while your balance remains the same. This makes it look like you have maxed out your credit card, causing your credit score to drop. So, it is advised to clear off your outstanding balance before closing a credit card.
If you are trying to give a boost to your credit score, you might think not using a credit card at all will show how responsible you are. But actually, it leaves an opposite effect.
Some credit card users might think that they are doing right by not borrowing or charging anything. Credit card companies rely on payment history to judge how borrowers will do in the future. So, if you don’t borrow they have no information about your payment behavior on which they can rely on. Thus, you don’t have enough of a credit history to generate a good credit score and lenders might reject your application as they can’t trust on your creditworthiness.
Credit card issuers take the help of ‘third-party debt collectors’ in order to collect payment from you. They might send your account to collections either before or after charging it off.
Well, a ‘collection status’ simply indicates that the creditor has ended up trying to collect payment from you since it was useless and had no other option other than hiring someone else to get payment from you. Well, this account status is one of the worst things of your credit score.
In A Nutshell
Well, all of these aforementioned are some of the common mistakes that can hurt your credit score. It is advisable to be a responsible borrower in order to maintain an excellent credit score. A good credit score is vital to obtain a credit card Dubai, personal loan or any other financial products. As lenders take into consideration your credit score whether to give you credit card or loan. Hence, it is the most important factors in your financial life.