10 Common Mistakes That Can Decrease Your Credit Score and How to Avoid Them

Missed EMI and credit card payments can significantly lower your credit score because delayed/missed payments can hurt your overall credit report. Every credit bureau and financial institution checks a person's payment history before generating a credit report.

If missed/delayed payments start piling up, then it will severely lower your credit score. So, pay your EMIs or credit card bills on time.

It isn’t a good idea to keep multiple credit cards simultaneously open. Please remember that even if you don't miss payments on these cards, using too many credit cards reflects poor financial management skills.

Moreover, lenders might feel that you’ll use up the credit of all the cards even if you don’t use all of the available credit. It’s one of the common mistakes that impact credit scores. So, it’s best to avoid it.

Did you know that the timeframe during which you hold a credit card is a major contributor to building a good credit score? So, even if you don’t use a credit card, don’t make the mistake of closing it unless and until it's required.

Otherwise, it will hurt your overall credit report and decrease your credit score.

Unsecured loans are the ones which are not backed by any collateral. Examples include personal loans, credit cards, education loans, and more.

When someone has multiple unsecured loans, it indicates he/she might be financially overburdened with debt. Furthermore, it denotes such persons as risky candidates. Lastly, always remember that if you have numerous active unsecured loans, it’ll have a major negative impact on your credit score.

Submitting multiple loan or credit applications to different lenders is one of the 10 common mistakes that can decrease your credit score. It indicates credit-hungry behaviour, which doesn't show you in a flattering light.

Apart from lowering your credit score, there’s another side effect. It cuts down on your negotiating options with the lender. As a result, you might receive credit, but on unfavourable terms and conditions.

Not paying your utility bills (electricity, gas, phone and water) in time is another mistake that adversely impacts your credit score. Credit rating agencies consider your payment history while preparing a credit report and assigning a credit score. Even if you miss one payment by over a month, your credit score might decrease.

Late payments might remain recorded in the credit report for many years. You will face questions regarding late bill payments if you apply for loans. You can set payment reminders or set up the auto-pay option to avoid late payments.

If you pay the minimum amount due on your credit card bills, then it might negatively affect your credit report. While your debt may seem more affordable, your interests can start piling up and strain your purse. When the balance of the credit card bill grows, it can significantly increase your credit utilisation ratio or the percentage of your available credit you’re using at a given time.

You should try your best not to let the credit utilisation rate rise above 30%. Otherwise, your credit score can come down greatly. So, what can you consider? Try to pay off your credit card dues in time. Use other payment methods until you’ve cleared your credit card dues.

Co-signing a loan can also contribute to lowering your credit score. Imagine a situation where you have co-signed a loan for someone you know, and the person fails to repay. It will get recorded in your credit report as now you’ll be liable to pay the remaining due and this can bring down your credit score as well.

Only a few people know the impact of non-payment of taxes on credit scores. When you don’t pay taxes for a long time, the government may place a tax lien on your property, which can severely bring down your credit score.

Always monitor your credit report closely for any inconsistency. If you come across any inaccurate data or wrong information, then bring it to the attention of the concerned authorities immediately.

Moreover, if you track your credit report regularly, then you’ll also come to know when your credit score is on the fall and take steps to rectify the situation.

Building a good credit record can be time-consuming. So, develop good financial habits early on and consciously avoid making the 10 common mistakes that can decrease your credit score. It will be easy for you to build creditworthiness.