Many of us do not realize when we are doing something that negatively affects our credit score. A majority of people only realize that their credit rating is poor when they are denied a loan, or charged a hefty interest because of their low credit score.

It is a good idea to check your credit rating every 6 months so that you are not surprised when you need to borrow money in an emergency. It is also important to be aware of the ways in which your credit score can be affected.

Here are some of the common mistakes that negatively impact credit scores

Late Payments

This is usually the primary cause of poor credit scores. Missing the due date for a payment can cause your credit rating to drop by quite a bit. Even if you pay your debts off completely, the negative impact of the missed payment does not go away.

Make sure you budget your income to allow you to pay back your credit card/loan commitments as soon as possible. If you leave it to the last minute and become unable to pay on time, your credit score drops. Keep a monthly payment reminder set to a week before the due date to ensure timely payment.

Making too many loan applications

Ensure that when you are looking to get a loan, you do thorough research and select those banks or finance companies with whom you have the best chance of getting your loan approved. Each time you make a loan application, the lender will make an enquiry on your credit report. If you have too many such enquiries, your credit score will suffer. Avoid making more than one application at a time.

Overusing credit cards

You can spend as much as the authorized limit on your credit card. However, if you spend most of your available credit limit every month, it indicates that you are very reliant on credit, making your credit profile look risky. To lenders, overusing your credit card is a sign of poor financial discipline. Having multiple credit cards is another factor that negatively impacts your credit score.

Multiple unsecured loans

If you take up multiple unsecured loans, especially at the same time, your credit score takes a hit because lenders assume you have to make too many repayments to be taking up additional loans. The most common examples of unsecured loans are personal loans and credit cards.


The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.

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