Stop these 5 everyday money habits that are damaging your creditworthiness
Creditworthiness has become one of the busiest words in the financial world in the last decade, hasn’t it? By now, most of you may have been inundated with many inputs, suggestions and advice on its importance.
From the factors that were included in its calculation to its role in our lives, tHere is a wealth of information that we are bombarded with in the financial world.
But apart from what many of us fail to realize, building and maintaining good credit is neither a daytime effort nor an overnight sorcery.
It’s what we do with our finances every day that can beat or break our creditworthiness. Do you want to know how? Read on as we develop some of our daily money habits that hurt our creditworthiness.
1. Spend more than 30% of your total credit card limit
One of the main factors that will affect your creditworthiness and which is heavily weighted by the offices is your credit utilization rate (CUR).. It’s the proportion of your total Credit card limit you are using.
In general, financial institutions consider those with a CUR greater than 30% to be credit hungry, which can be viewed as a higher probability of default on future loan repayments. As a result, credit bureaus also follow suit and drop your creditworthiness by a few points if this 30% mark is exceeded, which, if used frequently, can cause considerable damage to your creditworthiness.
Therefore, to avoid compromising your creditworthiness, it is better to limit your credit card spending to 30% of your total credit limit.
If you have difficulties with your existing card limit, either ask your card issuer to increase the credit limit or you can opt for an additional credit card. Either way, these steps would result in an increase in your total credit limit, which can lower your CUR, provided you don’t increase your credit card spending when you receive the increased credit limit!
Also Read: Worth Explains – Why Credit Should Be A Millennial’s Best Financial Partner
2. Turn a blind eye to your credit report
This is another unhealthy habit that has the potential to damage your credit score.
For the uninitiated, a credit report is a summary of your current and past credit and credit card accounts, your monthly repayment history for those accounts, credit inquiries to financial institutions, and other credit and personal information.
Based on the information submitted to the credit bureaus by financial institutions, your credit report is calculated and then your creditworthiness is calculated accordingly. So isn’t it obvious to check your credit report every month?
Finally, if you turn a blind eye to your report, the existence of errors or possible fraudulent activity mentioned on your credit report can be circumvented time and again and damage your creditworthiness.
So make sure you get your free credit report annually from the 4 credit bureaus present in India. And for regular updates on your creditworthiness and report on a monthly basis, you can visit various online finance portals or apps, such as: CREDwho offer their visitors free credit scores and credit reports on a monthly basis. Such a facility will help you keep an eye on creditworthiness and, if necessary, take the necessary corrective action in a timely manner.
Also read: Why it is important for millennials to check their credit reports every month
3. Take up only unsecured debts such as credit cards and personal loans
Yes, you’ve read that correctly. The only unsecured debt like a personal loan or credit card can damage your creditworthiness. This is due to the presence of the “credit mix” factor in your creditworthiness calculation. It refers to the ratio of your unsecured and secured debts (like home loans and car loans).
Because financial institutions tend to prefer lending to those with a balanced mix of secured and unsecured loans in their portfolios, credit bureaus also tend to rate these consumers higher and cheaper, which translates into higher credit ratings.
On the other hand, those with too many or only unsecured loans can be perceived negatively by Schufa and financial institutions, which can also damage their creditworthiness.
Also read: How Millennials can start 2022 financially strong
4. Send too many credit inquiries to lenders
Isn’t it common that whenever we think of a loan or credit card, we quickly make an inquiry or submit the application directly to financial institutions?
Sometimes we tend to direct such inquiries / applications to not just one but several lenders, especially when funds are urgently needed or when we are thinking of “only” checking the offers we receive from different lenders.
This is exactly where we tend to be wrong. Let’s get that straight for you.
Every time you make a credit or credit card application or an inquiry, the lender gets your credit report from the credit bureaus to assess your creditworthiness and your repayment history to date.
Now, such credit report requests will be listed as credit reports on your credit report, each of which can reduce your credit score by a few points. And, if you end up submitting multiple loan applications to lenders, especially in a short amount of time, your credit score can go down.
It is therefore advisable not only to spread your applications and inquiries over different time periods so as not to bombard lenders with many applications, but also to make sure that you read up on the creditworthiness of credit cards and loans, as well as the offers of different lenders, by checking theirs Visit websites or even online finance portals that offer such an opportunity. Then send an application to only the most promising.
Also read: Smart Money Habits In Your 20s That Can Make You A Millionaire In Your 30s
5. Failure to make timely payments on your credit card bills and credit EMIs
Your repayment history in relation to your credit card bills and credit EMIs is another factor that plays a significant role in calculating your creditworthiness.
So if you are negligent in fully repaying your credit card bill in a timely manner and paying the loan EMIs on or before the due date, you may see irregularities in your loan repayment history mentioned in the credit report. Such a financial habit leads credit bureaus and financial institutions to view you as a financially undisciplined borrower, increasing the “credit risk” associated with lending to you.
Not only can all of this have a significant impact on your credit score, but it can also decrease your chances of getting credit and credit card approval. In order not to miss out on credit card payments, you will a CRED Member. The app not only reminds you of credit card statements in good time, it also detects the hidden fees for you!
Also read: Why your creditworthiness can go down with on-time payments!
So Click here to CRED. to download and activate a multitude of exclusive offers, rewards, cashbacks, etc. for credit card payments, receive payment reminders, credit checks, hidden fees or charges and take part in fun games that give you the chance of exciting gifts!
And do not forget see CRED to your friends and family!
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