A strong credit score provides various opportunities to credit applicants, involving negotiation power, the desired loan amount, the priority over various other applicants (in comparison to applicants having low/fair credit scores), lower interest rate. On the contrary, a poor or bad credit score is a reason for multiple loan application rejection and higher interest rates among the rest. Thus, it is crucial to understand how severe a poor credit score becomes for you and various factors that can impact it in a negative manner.
What are the crucial factors that impact your credit score negatively?
Below listed are some of the most crucial factors that impact your credit score in a negative manner. If they fail to get resolved within time, it can form a never-ending loop that begins from poor credit score, various loan application rejections due to hard inquiries and then again back to a lower score than before. This is a vicious circle.
Irresponsible repayment history
An irresponsible credit repayment track record is one of the major parameters that impact your score in a negative manner. This shows the inability and indiscipline of credit behaviour you have towards loan EMI and due repayments. And at times, it might also take several years to ameliorate and regain the score.
Solution: It is recommended to repay your debt in full and on time. In case you fail to manage your credit repayments owing to a few genuine reasons, you can approach the concerned authorities and ask for a grace period.
High CUR (Credit Utilization Ratio)
It is advised to use just 30 percent out of the overall credit amount. Card users using more than a particular percentage reveal high dependency on credit, which leads to a fall in credit score.
Solution: Applicants must manage to use the CUR judiciously. In situations of a higher credit need, the applicant can connect easily with the concerned financial institution, creditor, or issuer to avail of higher credit amounts. However, the use of just 30 percent of CUR is applicable too in the case of higher credit amounts.
Unpaid credit amount
Missed, delayed, partially settled, outstanding credit payments – all of them lead to lower credit scores. Failure to repay your outstanding on-time gets reflected on your credit report, which can hinder the procedure of credit card or loan approval.
Solution: Setting reminders for your credit card repayments and EMIs by the due date is a good idea. In case of any outstanding credit balance, you can convert the outstanding amount into EMIs. In this way, you can prevent yourself from being overburdened.
Credit report errors
A credit report is an accumulation of the user’s credit repayment behaviour and credit history accumulated from lenders, banks, and various other financial institutions. Any comment, issue, error in your credit report can affect your credit score massively.
Solution: If there is any error or issue in the report, it is crucial to increase a dispute with concerned authorities as early as possible. It further is recommended to check your credit report at least twice a year. To check your CRIF Highmark score, visit its website. However, note that a free CRIF Highmark score can be availed just once a year; after this, you will have to pay for the report. Alternatively, you can also visit online financial marketplaces to view the report. For this, you can approach any of the online markets, fill up the asked details and finally click on the check my credit scoreoption.
Hard inquiries are made by the lenders whenever you apply for a new credit option on their platform. Such inquiries, within a specific time, show your multiple attempts to acquire the credit option, which projects you as credit hungry. Being projected as a credit hungry individual owing to multiple credit requests leads to a negative impact on your credit score, which also brings down your eligibility for the applied loan.
Solution: You must refrain from making multiple credit requests within a short time span. Instead, you must visit online financial markets to check your eligibility for the credit option and apply for the option based upon your score, income, and repayment capacity. While such platforms fetch your report to know your best match, such inquiries on their end are termed as soft inquiries, which do not reduce your credit score and keep your credit eligibility chances intact.
Imbalanced credit mix
A negative score is also the outcome of your inability to keep a good credit balance, i.e., between unsecured and secured credit options.
Solution: A balanced credit mix refers to the healthy balance between unsecured and secured loans. Thus, you must check out ways to manage both kinds of credit options and then connect with the expert in case you need any clarifications.
Choosing to close your old credit card
While for many closing old credit cards may appear to be a responsible move, it is not and can lower your credit score. Keeping your old cards open helps you maintain a long credit history. Long credit history is often preferred by lenders or issuers when approving your loan or credit cards.
Solution: If you hold multiple credit cards and want to close any of your cards, then choose to close the one which is relatively newer as it would have the lowest credit history.
Paying your outstanding dues late
If you want a strong credit score of 750 and above, you must not miss repaying any of the credit card payments or EMI even a single time. Your repayment history holds high weightage informing your credit score. The more payment you fail to meet, the more is the dip in your score.
Solution: One of the major reasons to fail to meet your outstanding dues is spending more than your repayment capacity. Thus, you must always ensure to spend only the amount through credit cards, which you can repay by the due date. In case you do not have the capacity to repay in the future for a specific purchase, either avoid buying it or buy it at no-cost EMI.