A good credit score is of seminal importance in that it ensures an individual can avail of auto loans, mortgages and education loans among others. According to experts, an individual who wants to ensure a hassle-free loan approving process, should have a score of above 700. Credit scores reflect responsible behavior. However, it has been found that even responsible people do not always have good credit scores. The following are some of the common mistakes that people make.
Overuse of one credit card
Many use only one credit card to make all their payments every month. However, according to experts, using only one credit card for all transactions can have an adverse impact on the credit score known due to high degree of utilization (percentage of credit being used). According to a recent study, customers with credit scores above 770 have an average utilization of around 5.5% while those with scores below 600 have an average utilization of 77.1%.
A high utilization reveals an individual’s lack of control over his or her spending. Secondly, various credit card companies calculate credit limits based upon the income of an individual. If you use too much credit, banks assume that you have too much debt.
According to experts, one of the ways to improve utilization is to increase your credit limit or apply for a new credit card. Credit report should be checked at least once a year free of cost. You should ensure that errors, if any, are corrected in the cibil report. Customers can register their complaint online.
Too many inquiries
If there are too many inquiries - personal loan, car loan and so forth in a short period of time, it reveals a credit hungry behaviour, which does not go down well with banks. A healthy gap between various inquiries, is therefore, a must. For instance, you should not apply to six banks for home loans since each inquiry is reported in the credit report. Banks and financial institutions will doubt the repayment capacity of individuals who are unduly dependent on credit. According to experts, the best way to improve cibil score is to keep enquiries as low as possible. You would do well to note that a gap of a couple of months between two loan applications will ensure that your credit score does not take a beating.
Closure not settlement
One of the frequently made mistakes is that many individuals opt for settlement in case of any payment disputes. As a result, banks label such cases as ‘settled’ in the CIBIL report, which has an adverse impact on an individual’s CIBIL score. According to experts, one should not opt for settlement and instead choose closure of the account. An account can be cleared by making 100% payment. In case of any disputes, customers can approach the ombudsman. However, reaching settlement with any bank will cause more harm than good in the long run.
NOC from credit card provider
If an individual wants to close any credit card, he or she should insist on taking the no objection certificate from the credit card provider. In several cases, customers opt for closure but unfortunately rarely follow up on the same, which can have an adverse impact on their credit scores. Credit card is closed only after a no objection certificate is received from your bank. Also, customers should ensure that their CIBIL database is updated by the bank within 45 days, failing which, CIBIL score may be affected negatively.
TransUnion CIBIL is one of the leading credit information companies in India. The company maintains one of the largest collections of consumer credit information in the world. CIBIL Score plays a key role in the lives of consumers. Banks and other lenders check the CIBIL Score of the applicants before approving their loan or credit card application. Consumers can visit the official website of CIBIL to check their CIBIL Score and Report.