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credit score mistakes - 5 mistakes that will lower your credit score

You know your credit history affects your life, but there are also ways it does so, which you may not have realized yet. Apart from determining what loans and credit cards you can get, at what interest and terms, it could soon play a role in getting a job, home rent, and other things as well. This is why it is so important to keep tabs on your credit score and credit report. A drop in your score can be the difference between getting and not getting a much-needed loan. 

Credit score mistakes that may be costing you lakhs each year

It is also important to maintain responsible behavior that only strengthens your credit score. Whenever possible, get rid of behavior which can harm it. Wondering what such harmful habits and behaviors can be? Given below are some of them:

  1. Making late payments: Making late payments may seem harmless, especially when you’re doing it for the first time. But if it becomes a habit, there can be a lot of problems. Fines on late payments can add up to a lot over time. And that’s not all. Late payments remain on your credit report for several years. So it’s not hard to see that late payments harm your credit score  a lot.

  2. Making just the minimum credit card payment each month: You may not know this, but the higher your credit card balance is, the more the interest you’ll have to part with. Interest is the opportunity cost of borrowing money. Now, there are ways for you to avoid and minimize this cost or charge, the biggest one of which is to pay your credit card dues each month as much as possible, and not just the minimum amount. The more you don’t pay, the more you pay interest on it. Thus, if you do have cash on hand which you won’t be using anytime soon, why not pay the full amount each month? 

  3. Maxing out your credit card borrowing limit: Credit cards have a ‘credit limit’, beyond which you cannot borrow. Typically, you have to keep your borrowings at 30% of the limit. Go beyond them once or twice, and it may not be a big problem. But continue to max out or borrow till 100% of the card’s capacity too many times, and your credit card company may see you as someone who is desperate for credit. And remember - they report such behavior to your credit bureau, which means your credit score will take a hit as well. 

  4. Not understanding introductory credit card interest rates: Thinking about getting that new credit card? Check out its terms and conditions thoroughly, as well as the deceptive introductory rates. Low interest rates may attract you enough to take credit, but such introductory rates often expire after a certain period. This means your interest rates shall increase later, and you could end up paying a lot more than you planned for.

  5. Not reviewing your bank statements and credit card statements each month: This serves not only as a reminder to your spending history. Sometimes, you may even come across suspicious activity like identity fraud, wherein someone else spends using your card! If you happen to notice this, make sure you report it quickly to both your lender and the credit bureau.

  6. Closing off an old paid-off credit card account: If the account is already paid off, what is the problem in closing it off? Firstly, it only increases your debt-to-income ratio, which lowers your credit score. Secondly, it changes your credit account mix. Remember, lenders want to see a good mix of credit accounts. Thirdly, closing off an old account can reduce the average age of your remaining accounts, which in turn can harm your credit score even more.

  7. Taking the first loan that you come across: Even the smallest difference in interest rates can save you a lot down the line. Hard inquiries do harm your score, but if you shop around for a new loan and approach multiple products, they don’t generate multiple hard inquiries. The inquiries they all make are taken together as a single inquiry. It still depends on the type of credit scoring model being used, but it is mostly between 14 and 45 days. During this time, you can shop around for the perfect loan product. This is an exception to loan only, but not to credit cards. Credit card hard inquiries can really harm your credit score.

  8. Not checking credit reports and credit scores regularly: Credit reports determine your credit score, and so it is a good idea to check your report regularly. Not doing so means you can miss out on incomplete and inaccurate information that can harm your credit score, and by extension, interest rates you are offered. As for credit scores, you may not get them from credit bureaus, but you can get them from financial institutions, companies and Fintech companies like mymoneykarma 

At the end of the day though, remember that nothing is permanent. If your credit score is lowered and if you have to deal with high interests, remember that the time shall pass. And in time, your credit score shall rise again!

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