Your CIBIL score is a crucial indicator of your financial health, so good credit habits are essential to build and maintain a healthy profile. Let’s look at some of the common mistakes that can come in the way of fast and easy credit access.
Not Paying Bills on Time
Missing even one payment can hit your credit profile negatively. Overdue payments show up on your report for many years, although the impact on your score will diminish over time with the addition of newer positive actions. Even so, once overdue payments enter your record, they stall your credit progress.
A good tip is to set up payment reminders (your lenders will likely send you these) Even better, is to set up an autopay facility in the account you make your payments from, ensuring of course that you have enough money in your account each month to cover the auto debits.
Using the 'Minimum Payment' Option
Every payment or EMI alert mentions the minimum due payable, but using that facility is not just risky behaviour, it’s ultimately a very costly habit to get into. The interest will cost you more money in the long term than paying up your debt every month. And eventually, it also damages your credit profile.
By making just the minimum payment every month, you end up carrying a high balance on your credit card. This increases your credit utilisation ratio, i.e., the percentage of your available credit that you're using at a given time, which could cause significant damage if left unchecked. A credit utilisation ratio above 30% can start to drag down your scores. So, the lower it is, the better.
Applying for Multiple Credit at Once
Every time you apply for credit, the lender makes a hard inquiry to check your report and determine whether to approve your application. When you apply for multiple loans in a short period, lenders may view you as a riskier borrower. So, to avoid damage to your credit profile, you can start by researching the credit cards you’re eligible for. Then apply for the one that you think is a fit for you.
Taking on Unnecessary Credit
Let's say you avail of a loan to take a holiday or run up a large credit card balance on non-essential/non-emergency purchases. These actions make it more challenging to balance your budget and keep to your payment schedule.
The simple solution is to apply for credit only when you need it, thereby not stretching yourself financially and avoiding any build-up of interest/penalties on overdue payments.
Co-signing loans without due diligence
It’s understandable to co-sign a loan for close friends and family, but it can become a problem for you if the borrower misses or delays their payments. Because your CIBIL score gets impacted negatively by their delinquency/poor credit behaviour. Hence, you should be cautious when co-signing any loans.
Not Checking Your CIBIL Score and Report Often
Monitoring your CIBIL score and report not only lets you keep track of your progress, but it also helps you spot potential problems and address them before they do significant damage. With a CIBIL subscription plan you can check your CIBIL score and report as often as you'd like and access a host of additional features. Else, you can access your CIBIL score and report for free once every calendar year at https://www.cibil.com/freecibilscore
In short, getting to a healthy CIBIL score takes time. Once you’ve attained it, good behaviours such as checking your CIBIL score and report regularly, paying your bills on time, keeping your credit card balances low, and avoiding non-essential debt, helps maintain a healthy credit profile. So steer clear of the credit missteps listed above to attain and maintain the best possible CIBIL score.