A Credit Score is a number which is determined by your credit activities, a good credit score means that you are good at managing your money and pay your debts on time. They get loans easily and with good interest rates.
Before giving you any loan, banks always check your Credit Score before processing to get an idea of whether you able to repay or not. Good credit scores will help you with your credit card application. Cards easily. n a nutshell, your Credit Score tells financial institutions whether they can extend credit to you or not. A good credit score means you are a safe bet, and a bad score tells them that there is a higher risk of giving you a loan.
Common Mistakes To Avoid For Getting Good Credit Scores
The following are some common mistakes that people often make which results in them having a bad credit score. They are:
- Defaulting on payments:-Payment history is one of the most important factors in determining the credit report. The payment history carries approx 35% of your credit score. It affects your credit score negatively when you made any late payment or any missed payment after the due date. Paying your debts or bills late not only affects your credit score but also increases your debt with late fees, charges, or penalties. You should set reminders so that you can pay on time. You should be careful while taking any new credit or agreeing to a debt.
- Applying for multiple credit cards or accounts:-It increases your chances of incurring more debts when you have multiple credit cards. The more cards you have, the more you spend which leads to uncontrollable expenses that finally lead to debts. Whenever you apply for any loan or a new credit card, you’ll be subject to a credit inquiry. Too many inquiries in a short span of time can hurt your score. Well, lenders want to know with whom they are dealing or giving a loan. And these inquiries gives a false impression that you are borrowing more than you should be.
- Not being honest about your problem:-Many people instead of clarifying problems with their creditors prefer to hide from them. This will result in to increase in more debt due to penalties and charges. So it is advisable that if you have a financial problem then discuss it and try to negotiate a repayment plan with the creditor. This will help you to pay off your debts without hurting your credit scores.
Read more about: 3 Things To Remember About Bad Credit
- Closing down your old accounts:-It is better to have older credit card accounts because they generally carry good history and better interest rates. But history gets dismissed as and when you close down that account. Closing these accounts can hurt your credit score because the available credit is eliminated along with the interest rates on that card.
- Defaults on Utility bills:- Generally, utility bills like electricity bills, phone bills, etc are not listed on your credit reports. But, when you make any default on the payment, the issue is handled by the collection agencies. They further list them in your report. So this can affect your score negatively.
- Optimum utilization of cards:- It is important to efficiently utilize your credit cards. It badly affects your credit score when you use your credit cards to the maximum effect. Generally, the ratio between debt to available credit accounts for one-third of your score and You need to maintain a minimum balance around 10% of the available credit. If you max out your credit cards your credit scores get lowered.
- Co-signing on an account:- It is very risky to co-sign your account to another borrower. Your credit score affects badly when you co-sign on a document and any mistakes such as non-repayment or defaults in payment are made by them. So before co-signing, prefer to check all the details about that person or avoid to do so.
- Carefully consider any new offers:- Research well when you take any new credit card. Many companies offer cards with special offers and discounts to their customers. But sometimes there may be some kind of loopholes. So it is advisable to read all the details regarding miss payments, interest rates and offers terms and conditions carefully. It will help you to protect your scores
- Not checking your credit report:- You should always check your credit reports. If you find any mistakes then report it to the credit bureau so that they can be corrected. It is important to do so as any wrong information in the report can badly affect your credit scores. Check your credit report regularly and remove any mistakes that you think can affect your credit scores.
So there are some common mistakes. You can achieve good credit scores if you avoid these mistakes and can get loans easily and with good interest rates.
You may also refer: understand the credit score