Maintaining an excellent credit rating should be one of the most important financial goals of an individual. In India, CIBIL is regarded as the most important credit rating organisation by lenders. A high CIBIL score indicates you as creditworthy. It will allow you quicker access to financial advances for your personal and professional needs.
Credit rating or CIBIL score is a numerical representation of an individual’s credit history. It ranges from 300 to 900 and a score of 750 or higher is considered excellent. However, as it deals with your personal financial habits, even the smallest and seemingly arbitrary mistakes can leave a significant impact on your credit score.
So, here are 5 mistakes you should avoid to maintain an excellent credit rating.
1. Missed or late repayments – Your repayment history is one of the most crucial factors that a credit agency uses to determine your credit score. Missed or late repayments of your loans and other forms of advances, or your credit card outstanding impact your credit rating adversely. Credit bureaus will record these missed or late payments on your report and reduce your score.
2. Spending a large part of your credit utilisation ratio – Credit utilisation ratio is the amount of credit you use within your available credit limit. If you utilise 80%-90% of your limit with your credit card on a regular basis, you will be considered as a credit-hungry individual, which will decrease your credit rating. It is advisable to utilise not more than 50% of your available credit to avoid affecting your rating when credit bureaus calculate CIBIL score.
3. Applying for multiple credit cards within a short span – Whenever you apply for a new credit card or a loan, the lenders send an enquiry to know your credit rating. Too many enquiries within a short span of time will make you appear as credit hungry, affecting your CIBIL score.
Wait for at least 6 months before applying for a new credit. Also, you can use the website of the financial institutions to know more about various credit cards or loan offers. You will find tools like personal loan eligibility calculator, EMI calculator, etc. that will help you determine the best product you need before applying.
4. Closing older credit accounts – Closing older credit accounts may not always improve your CIBIL rating. It may increase your credit utilisation ratio, which will affect your credit rating adversely.
If you want to close credit accounts, close the newer accounts first as your older accounts will have a longer credit history. Doing so will help you improve your CIBIL score.
Financial institutions i.e NBFCs offer affordable interest rates and flexible tenors on personal loans. These can help you meet your financial requirements without straining your budget.
5. Not reviewing your credit reports periodically – Periodically check your credit report to ensure there is no inaccuracy affecting your CIBIL score. Payments such as medical billing or a clerical error from the lender or bureau can inaccurately decrease your credit rating. Periodically checking the statements is the only way of detecting such errors.
You can use various websites to check your credit report. Ideally, you should check it once every 3 months. You will also get to know about multiple offers on advances like a personal loan, home loan, or credit cards.
Many of the above-mentioned mistakes will reflect on your credit report and adversely affect your future loan or card application. Understand CIBIL score and avoid these mistakes at all costs to improve your credit rating and improve chances of getting advances like personal loans at the most favourable terms.
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