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Introduction

A credit score is one of the primary factors lenders consider before sanctioning a loan. The credit score check determines the creditworthiness of the borrower. 

Essentially, it lets the lender know whether the borrower will repay the loan. If the credit isn’t good, the lender may reject the loan application or approve it with very high-interest rates. Therefore, it is crucial to have a high credit score. The exciting thing is that, in many cases, we are not aware that specific actions are impacting our credit score indirectly. 

This article will examine different bad practices that can result in a bad credit score and how to fix them. 

Practices that can affect your credit score negatively

 Listed below are some practices that negatively affect our credit score:

  • Missing the due date and thereby making late payments
  • Defaulting on the loan payment altogether
  • Applying for a lot of credit or making loan applications in a short time
  • Using one credit card for multiple transactions
  • Asking too many queries for a loan in a short period depicts a credit hungry behavior
  • Utilizing too much of the credit sanctioned
  • Having too many credit cards

How to fix them?

Now that we know the bad practices that can affect our credit scores – let’s understand how to fix them. 

1. Keep reminders

Set up a reminder on your phone so you don’t forget to pay your credit card bill. Even one late payment can hurt your credit score. You need to pay only the minimum amount due on your credit card bill. By doing so, you will avoid late payment fees.

2. Make fewer inquiries

Experts recommend waiting a few months before applying for a second loan. Keep loan applications to a minimum as well. You shouldn’t apply simultaneously to five banks or financial institutions. That suggests that you are under significant financial strain. 

3. Efficient credit utilisation

Borrowers should not utilize more than 30% of their credit limits as a rule of thumb. If the borrower has a high utilization ratio, they cannot control their spending. Borrowers can, therefore, request an increase in their credit limits from banks or financial institutions to prevent this from happening. This will reduce the credit utilization ratio and improve credit scores. 

4. Use your credit cards once a while

Usually, when we do not use our credit cards for an extended period or stop using them altogether, lenders do not have information to evaluate our repayment history. This causes them to have doubts about our financial ability. If you choose to close your credit card account, ensure you obtain a no-objection certificate from your lender. Furthermore, when you close your credit card account, the banks must update the CIBIL database within 45 days. So, get an update from your bank on this. 

5. Check your credit score periodically

Another way to improve your credit score is to keep a constant watch. In this way, we find out whether the payments are in order and if any fraud occurs. If you find any errors, you can always file a complaint online; checking it once in a while will also maintain a sense of discipline to avoid getting into any bad practices. 

Many platforms even offer the facility of a free credit score check before you apply for a loan. 

Final thoughts

Generally, a credit score of 750 and above is considered healthy. Be sure to use the strategies listed above to maintain that. Getting a loan online these days is quick and easy. Most loan companies offer a free credit score check and custom loan solutions tailored to your needs. If you have any questions or doubts, you can consult an expert.