It is just a three-digit number, but as far as your financial life is concerned, it might as well be your grading on how well you manage your finances. So, it’s time you took a serious look at your credit score.
Banks use it to determine your loan eligibility and in some cases it decides the interest you will be paying. Your scores may be even pulled by employers to evaluate you.
So given all these, if you think that only payment defaults can wreck your credit score, remember, there are other ways you could be hurting it and not even come to know about it. Your plastic money plays an annoyingly big role in denting your scores.
Good behaviors too fail
While a ‘bad behavior’ like missing payments adversely affects your credit score for sure, certain ‘good behaviors’ too can affect it.
Are you in the habit of regularly making just the minimum payment on your credit card bill each month? While the paying regularly is a good habit in itself, paying just the minimum due is not. It may lead to an assumption that you are struggling with your finances.
So make sure that you make regular and complete payments on your credit card bills.
Many cards and loans
Are you having around 3-4 cards, a personal loan, car loan and a home loan? This can affect your credit score. This is because, quite obviously the more debts you have, the lesser you enjoy the confidence of lenders.
Every lender assesses your balance sheets and bank statements before lending you money. If your debts are high, leaving a meager amount for you to spend after paying them, lenders would hesitate to offer you loans or cards as they fear default.
While cards are easy options to choose at the time of a financial emergency, think twice before applying for more than one.
Concluding that you don’t have to pay while in dispute
You are expected to pay your credit card bill every month, even if there is a dispute going on regarding any charges. Irrespective of whether it is a wrong entry, a double swipe or any other issue, if it is not settled by the time of the due date, you will have to pay for it. Once it is settled, the card company will reverse the payment to your account.
Assuming that you can skip paying the due amount because it is under dispute is the surest way to double your troubles.
Dues in add-on cards
How convenient it sounds when the credit card agent tells you to apply for an add-on card for your spouse or son, and that too for free! But don’t forget that your add-on card is a credit on your name only, so in case your spouse spends too much with it, it is going to affect your overall score, even if you are working hard to ensure smooth transactions for your card.
An add-on card would mean an additional credit which can be an unwanted hit on your credit score. So do you actually need it? Ask yourself this question before saying ‘yes’ to that sugary credit card salesperson.
Any cards rejected?
When you apply for a new credit card and it gets rejected (for any small reason), it brings down your credit score. The reason can be a silly one like there was no response on your phone at the time of the verification call. The amount of damage it will cause on your credit score depends on how many applications you have filed over the recent past. Sometimes cancellations too can damage your score.
Maxing out your credit limits: If you have a credit limit of Rs.1 lakh on your card, that doesn’t mean you should use that much every month. In fact, those who regularly exceed 60% of their credit limit too sometimes face a bad score, as it a sign that you are relying too much on credit. It doesn’t matter you are a religious bill payer every month.
However, there is a trick – you can pay your bill so that it’s off your card statement before the due date; the due amount then appears small when passed to the credit bureaus.
Until you know the reason for the drop in your credit score, you are helpless; but if you don’t work on keeping your score rosy even after knowing what’s holding it down, plastic’s not for you.
However, if you are able to maintain your score above 750, treat yourself to a shot of champagne for a job well done. Champagne bought with cash, that is!