Credit Score: If you plan to take a loan from the bank, maintaining a good credit score is essential. Without a good credit score, getting a loan can be difficult. However, there are small mistakes that many people make unknowingly, which harm their credit score. These mistakes can block your chances of getting a loan. Let’s explore the 3 common mistakes that can affect your loan approval.
Not Paying EMI on Time
The first and biggest mistake you can make is not paying your loan or credit card EMI on time. Financial institutions and credit bureaus consider this a “red flag.” Even a delay of 30 days can lower your score by 50 to 100 points. The Reserve Bank of India (RBI) considers timely payments essential for credit access. If you don’t make timely payments, your CIBIL score will drop, and you may not be able to get a loan.
Excessive Use of Credit Card
Using more than 30% of your credit card limit negatively impacts your credit score. This sends a signal to the bank that you are overly reliant on credit. As a result, you may have to pay higher interest rates on loans in the future. To maintain a good score, try to use less than 30% of your credit card limit.
Closing Old Credit Accounts
Many people close old credit cards or loan accounts without realizing the impact on their credit score. When you close these accounts, your average credit history shortens, which negatively affects your score. Credit bureaus consider this factor as “repayment history reliability.” Closing old accounts can decrease your CIBIL score, so think twice before doing so.
Credit Score Ranges and Their Meaning
- 300-579 (Poor): If your score is in this range, getting a loan is unlikely, and if you do, it may come with high-interest rates.
- 580-739 (Fair): You can get a loan, but the interest rates might be high.
- 740-900 (Good/Excellent): This is a good score, making loan approval easier and interest rates lower.
How to Improve Your Credit Score?
- Pay EMIs on Time: Always pay your loan and credit card EMIs on time to improve your score.
- Use Less than 30% of Your Credit Card Limit: Spend only what you need and try to keep your credit card usage below 30% of the total limit.
- Don’t Apply for Loans in Multiple Places Simultaneously: Applying for loans at multiple places at the same time can negatively affect your score.
- Try to Reduce Your Debt: Lowering your debt helps in improving your credit score.
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