Five Habits That Could Drag Down Your Credit Score

Most of us understand the importance of having a solid personal credit score. Credit scores from bureaus such as TransUnion CIBIL, Equifax, Experian and CRIF Highmark range from 300 to 900, with 750 plus being a satisfactory level. Having a high credit score ensures that you’ll have emergency access to liquidity if needed, and your interest costs would also be lower. Here are six habits that may be dragging down your personal credit score – so watch out.

Having just one credit card

In order to be able to build a solid credit score, you need to prove to rating bureaus that you have the intent and capacity to service your loans. In order to build up a track record of being creditworthy, you should ideally have two or three credit card accounts, as having just one account will not boost your score much. In addition, concentrating all your purchases onto just one card could lead to a high utilization ratio.

Overutilizing your credit limit

If you regularly utilize your credit limit to the tune of 40 percent or more, it will lead to a drag on your credit score. A much better idea would be to have one Visa, one Amex and one Mastercard, and spread your purchases across the three accounts. Increasing your credit limit to the maximum allowed limit can also bring down your utilization ratio, but do so if and only if you’re absolutely confident that you can maintain the fiscal discipline to not run amuck with your spends.

Delayed card payments, rollovers and bounced EMI’s

If you regularly end up missing your credit card payment deadline by a day or two, it’s going to harm your credit score, so make sure you settle your bill a few days prior to the deadline, just to be on the safe side. Also, completely avoid the score-destroying habit of paying just the minimum amount and rolling over the balance – this will crush your credit score in a matter of months. Similarly, make sure your account is well funded on your EMI date, as bounced EMI’s can severely hamper your credit scores.

“Hard” home loan enquiries

When you’re out shopping for a loan, the nature of your enquiries gets reported back to bureaus too. Direct enquiries with lenders are considered as “hard” enquiries, whereas enquiries on loan marketplaces are considered “soft” enquiries. With each hard enquiry, your credit score falls a couple of notches, whereas soft enquiries do not impact your score materially. Think about that the next time you go berserk hunting for the best home loan!

Piling on the “Zero Cost EMI’s”

In today’s day and age, it’s extremely easy to get swayed by the lure of online shopping festivals, purported “discounts”, and social media fuelled consumerism. In the end, you may end up taking a few too many zero cost EMI’s on your credit card. However, doing so will automatically increase your utilization ratio for that card, and hurt your credit score. It’s fine to take up a small, short term zero cost EMI here and there, but in the interest of a healthy credit score, make sure your EMI’s plus your monthly spends do not exceed 40% of your limit for that card.