While most people think your score goes down only because you default on an EMI or a credit card payment, in reality it’s generally the smaller habits which slowly affect your financial standing.
Today India’s credit lending industry is growing at a rapid rate. According to Loan Bazaar, in these modern days, banks and NBFCs don’t just see if you repay your loan, but how you utilize your credit, how many loans you are taking and what kind of behavior points out to a high risk profile.
If you plan to apply for a house loan, personal loan or even a premium credit card in the future, ignoring these mistakes could save you Lakhs in interest payments.
Before going to the mistakes, let us understand how credit scores are calculated and what banks look at. Loan Bazaar explains that lenders also analyze overall borrowing behavior and repayment patterns.
1. Paying Your Credit Card Bill Only After the Statement Date
“I pay my bill before the due date and this saves my credit score”. While it may seem correct and save you from late fees, paying after the statement date can severely impact your credit score. The main reason behind this is because banks report the balance in your account on the day the statement is generated, and not the day it is finally paid. Hence, even if you later pay the amount entirely on time, a high credit limit will be shown which may drop your score by increase your credit utilization ratio. For instance, if your credit limit is Rs 1,00,000 and the statement shows a balance of Rs 85,000 at the time it is generated, the reported utilization is 85%. Hence, this utilization ratio can actually decrease your score even if you never miss a payment. To avoid this, one can simply pay a part of the bill before the end of the billing cycle. It is best to maintain a utilization below 30%.
2. Applying for Loan Eligibility across multiple apps
The instant loan and fintech industry are helping people borrow money easily like never before, the only downside being that almost every “free loan eligibility check”, as highlighted by Loan Bazaar, in these apps actually leads to a hard inquiry which significantly drops your score. Multiple hard inquiries over a short period can also suggest that you are in a bad financial situation and are looking for a loan, resulting in your loan being rejected.
3. Closing your oldest credit card
This is one of the most common and misunderstood credit score mistakes. Your oldest active credit account helps boost your credit history length, which can affect your credit score. If you close an account, your total available credit can drop, and it can also negatively affect your average account age. Even if you rarely use your credit card, closing it can bring down your score significantly. If you find that you don’t use a credit card much and also do not want to pay a high annual fee on that card, you can instead put recurring bills that you regularly pay into it and transfer other payment methods.
4. Turning every purchase into EMI
“No cost EMI”, according to Loan Bazaar, offers have normalized the process of taking a loan for almost everything these days, including phones, cars and even clothes and meals. When a credit card statement has a large balance or has too many EMIs attached to it, the overall leverage that you own could get impacted which ultimately might not favor the lenders. This applies to home and car loans as well, especially when the amount involved is high. Therefore it is advised to use EMIs only for things which you would require over a prolonged period.
5. Ignoring Errors in your Credit report
When we apply for a loan at a bank, we usually rely only on our credit score and not the credit report which includes detailed information about your loan repayment history, credit utilization, credit account, etc. If these are displayed incorrectly in the report (like false defaults and unmatched loan information), it may result in an immediate rejection. Loan Bazaar recommends checking your credit report regularly to help rectify inaccuracies like duplicate loans, wrongly reported EMIs, etc.
6. Becoming a guarantor
Most people who agree to become a guarantor for their friends and relatives do not understand the implications involved. If the borrower fails to pay their EMIs, even a single default will start reflecting on your CIBIL report and hence your score as well. They will continue to pursue you for the loan even when all their contact details may be unavailable, and as a guarantor the lenders will directly knock on your door to pay up for the entire amount.
7. Believing not using credit is beneficial
People sometimes wrongly think that avoiding credit is the best way to keep a good credit score. Banks need data before they can make creditworthiness calculations about the applicant. Hence even if a lender wants to help you build your credit profile by giving you a credit card or a loan on reasonable rates, without prior experience of using any form of credit you may seem like too risky for the lender to help out and the loan or the card might just get rejected. Hence it is best to obtain some form of credit in India and make timely repayments to build your credit history.
The Larger Picture—Credit Score is essentially your Financial Behavior Report
A number is only a part of the story when it comes to credit scores. Lenders look into multiple factors such as how often you borrow money, your borrowing consistency, your financial stability, your debt-to-income ratio, etc. Improving a credit score does not involve a quick fix, but involves the development of sound financial behavior and responsible use of credit for an extended period. Loan Bazaar believes long-term financial discipline plays a major role in maintaining a healthy credit score. Hence, applying for a loan after improving your financial habit can significantly improve your acceptance rate, loan eligibility, and interest rate.
Final Thoughts
It is never just one action that damages your credit score; it is more likely that a combination of financial habits may have reduced your credit score over a period of time. This means that your credit score can indeed be improved; with some discipline and control over your financial habits, you may have access to better deals, cheaper interests, and higher loan amount for your requirements. In India today, credit score is basically financial leverage and not just numbers.
According to Loan Bazaar, your credit score is more than just a number. It reflects how you handle your money. These days, banks and lenders look beyond whether you pay your EMIs. They also pay attention to your overall financial habits. Using too much credit, applying for several loans, or missing even small payments can lower your score over time.
The good news is that you can improve your credit score. You do not have to make big changes all at once. Small, smart habits can make a real difference. Pay your bills on time, keep your credit card balances low, check your credit report regularly, and avoid applying for additional loans. These steps will help you build a stronger financial profile over time.
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