New Delhi: Credit is one of the basic necessities of a person or an enterprise as all the requirements can’t be fulfilled on the cash reserves. After opening the first credit account, be it a credit card, personal loan, overdraft facility, home loan, the credit rating companies begin to maintain the credit profile of a person. The credit profile or the credit score of a person variates on several things, which implies that it can get affected with a set of irregular habits also.
The credit profile of a person is dependent on factors such as repayment behaviour, credit facilities availed, earnings capacity, employment history and stability of sources of earnings. Here we take a look at three mistakes which can damage a person’s credit score.
Delay or default in repayments
A delay in repayment beyond inadmissible time limit or a complete default in the repayment hampers the credit score in a big way. Several scheduled commercial banks and credit companies have very stringent rules and regulations against delay or default in repayment due to the increased number of frauds and defaults in the credit repayment. A delay in the credit card bill beyond the due date or home loan EMI beyond the prescribed date may dent down the credit score by nearly 50 to 100 points. The credit score may take a serious beating in case of high-quantum repayments.
Availing too many credit accounts
Opening up too many credit accounts is also credit negative for an individual. Too many credit facilities or loans increases the debt burden way beyond the limits of the earnings capacity. A person with an existing home loan and 2-3 credit cards, whose limits have been exhausted, won’t get a personal loan easily. The banks and other financial institutions may reject the personal loan application because there are high chances that the person might miss the personal loan EMIs. The above situation leads to lowering the credit score.
High credit utilisation ratio
A high credit utilisation ratio is bad for an individual as it shows credit dependency. A person with three credit cards having a credit outstanding of Rs 1.8 lakh on a combined credit limit of Rs 2.5 lakh might be subject to a credit score revision because of the high reliance on the credit facilities as the credit utilisation ratio turns out to be 72 per cent. While, on the other hand, if the credit outstanding is Rs 1 lakh on a combined credit limit of Rs 2.5 lakh then the credit utilisation ratio translates to only 40 per cent.