Top 10 Mistakes That Can Ruin Your Credit Score: Key Points to Know

One late payment won’t hurt, right? That is what many people think, until their credit score takes a dip. Your credit score is more sensitive than you would think, and even little mistakes can leave a long-term impact.  

Let us understand about the most common mistakes that could mess up your credit.  

10 Mistakes That Will Ruin Your Credit Score:

1. Late or Missed Payments:

Even one single missed EMI or late payment negatively affects your credit score. It is important to make timely EMI or credit payments to maintain a good credit history and credit score. 

2. High Credit Utilisation Ratio:

Using more than 50% of your credit limit implies to the lender that you are too dependent on the credit and are unable to manage your finances comfortably. It is ideal to utilise up to 30% of your credit limit and pay back the outstanding amount in full before the due date.  

3. Multiple Hard Inquiries in a Short Time:

If you apply to too many lenders for either a loan or credit, the lenders usually do a hard inquiry to check your credit history and report. This leads to a temporary dip in your credit score. 

4. Closing Old Credit Accounts:

Many people assume that closing old credit accounts is a good practice, but it can actually hurt your credit score. An old credit account provides lenders with valuable insight into your credit history and behaviour. If you close it, they lose access to this positive information, which could have improved your chances of loan or credit approval. Keeping those accounts open helps showcase your long-term responsible credit management. 

5. Defaulting on Loans or Credit Cards:

Defaulting on loans or credit cards badly affects your credit score. The impact of loan defaults stays on your credit report for 2 years and will take you a lot of time to build a good credit score again. 

6. Having Accounts Sent to Collections:

If your account is sent to collections due to EMI defaults, it can majorly impact your credit score. The entry stays on your credit report for 7 years. It can also impact future loan or credit opportunities as lenders may not see you as a responsible borrower. Even if you pay off the debt, the impact still remains. 

7. Filing for Bankruptcy: 

If you file for bankruptcy, it can hamper your credit score and drop it by 100-200 points. Bankruptcy stays on your credit report for 7-10 years, depending on the severity of your case. It negatively affects all credit and loan options. 

8. Foreclosure on Property:

Foreclosure negatively impacts your credit score as well. It happens due to non-payment of multiple EMIs. Due to this, the lender has to sell your pledged property to recover the loan amount.  

9. Co-Signing Loans That Default:

If you co-sign on a loan and that individual defaults on their loan, your credit score also gets negatively affected. Thus, ensure you co-sign carefully and understand the repercussions of loan defaults 

10. Ignoring Errors on Credit Reports:

It is important to check your credit score at least once a year for any errors in the credit report. If you see any errors, you need to report them to the credit bureau. Additionally, you need to keep an eye on any unauthorised entries on your report by keeping track of your credit score and report regularly. 

Conclusion  

Your credit score plays a big role in your financial health, so avoiding these common mistakes is crucial to maintain a good credit score. By staying on top of your payments, being mindful of your credit usage, and regularly checking your report, you can maintain a good credit score.