Have a Low Credit Score? Read On to Learn the Factors That Impact Your Score.
A high credit score offers you various benefits like negotiating power, desired loan proceeds, priority over other borrowers and a lower interest rate. On the contrary, a low score is a reason for the rejection of several loan applications and a higher interest rate. As an outcome, it is crucial to understand the seriousness of a poor score and the parameters that impact it negatively.
CIBIL score range anywhere between 300 and 900, wherein 750 is considered a preferred score for lending. Thus, to maintain a CIBIL of 750 and above, ensure to conduct a CIBIL score check on a periodic basis to understand where you stand.
What are the parameters that impact your credit score in a negative way?
Considering the significance and importance of your credit profile, it is necessary for you to get rid of the parameters that impact your credit score in a negative way, in case there are any. If these remain unresolved, they may form a never-ending loop leading to loan application rejections, further lower scores, and hard inquiries. Thus, ensure to be aware of such parameters and avoid them. Listed here are some of the factors that create a negative impact on your score –
Undisciplined payment history
One of the parameters with a negative impact on the score is an undisciplined credit repayment record. This demonstrates the applicant’s inability and undisciplined behaviour towards payment of EMIs and credit card dues. At times, it might also take years to regain or improve the credit score.
It is advised that debts be paid off by the due date. If you are not able to manage the credit payments for valid reasons, you can contact the concerned authorities or place a request for a grace period.
High credit utilization ratio or CUR
It is advised that just 30 per cent of the overall credit amount may be used. If you use over a specified percentage of your CUR, it demonstrates your reliance on the credit, leading to a lower credit score. You, as an applicant, must use your CUR (credit utilization ratio) judiciously. In case your credit requirements are on a higher level, you may contact a relevant lender, financial institution, or bank to request higher credit proceeds or limits on your credit card.
Unpaid credit due
Late, unpaid, missed or partially settled credit payments result in lower credit scores. These payments are shown in the credit report, which may impact your credit card or loan approval process. For this, the best way to remember your due dates is by setting reminders for credit card payments or loan EMI payments. If you, as a borrower, have an outstanding credit balance and are unable to repay it, then you may consider converting them into easy EMIs. In this way, you can avoid getting overburdened. Also, in case you prefer to clear your loan dues through a cheque, then consider depositing your cheque at least a few days before the loan or credit card due date.
Credit report errors
A credit report is a collection of your credit repayment behaviour and credit history obtained from lenders, banks, and financial institutions. Any issue, error or comment on your credit report can create a considerable impact on your credit score. If there’s an error or issue in your credit report, it is important for you to file a dispute with the authority as early as possible. Also, it is advised that experts review your credit reports at least twice a year.
Lenders conduct inquiries on you, i.e., known as hard inquiries, whenever you place an application for a new credit card or loan. Such inquiries show your multiple attempts to avail of a credit card or loan over a particular time period. Constant hard inquiries have a considerable impact on your score and may considerably lower it. Thus, you must avoid making multiple inquiries for credit, at least within a specific timeframe. It is recommended to wait for some time before you apply for another credit option.
No credit mix
The inability to strike a balance between unsecured and secured loans can even lead to negative credit scores. A balanced credit mix is important for a strong credit score of 750 and above. A balance credit mix means a healthy balance between unsecured and secured loans. As an outcome, you as a borrower must see how to manage both kinds of credit mixes or consult an expert to get more info.
How can you ameliorate your score?
Listed here are some of the possible ways of improving your score. However, it is crucial to remember that such methods will not improve your credit score overnight. Forming a strong credit score of 750 and above takes considerable time, and you must patiently wait and simultaneously continue with your healthy credit habit.
∙ Pay your credit card bills in full on time every month
∙ Avoid leaving any unpaid credit balances
∙ Ensure maintain a proper balance between your unsecured and secured loans
∙ Ensure to use your CUR (credit utilization ratio) in a judicious manner.
∙ Resolve the errors in your credit report.
∙ Avoid applying for credit card or loan instantly after any of your credit application has been turned down.
∙ Set timely reminders for your credit card and loan EMI repayments.
∙ Make certain no minimum balance or partially settled amount is left.
Frequently asked questions
What are the common parameters that impact your credit score?
Common parameters that impact your score are missed or late payments, several hard inquiries, half-settled payments and higher CUR (credit utilization ratio).
Can you get a score equaling 900?
To attain a score of 900, you should pay your outstanding debts timely, avoid conducting constant credit inquiries, use 30 % of your credit card limit and resolve any comments or mistakes on your credit report.
Is 800 a high credit score for buying a home?
A score ranging between 750 and 900 is looked upon as excellent. If you, as an applicant, hold a score within this range, then it means you hold a higher chance of qualifying for a loan.