We all make mistakes. We forget things, make wrong decisions, and even hurt others due to our choices, but it's alright because it's all a part of our life. However, there are some mistakes which are small on the surface but do a considerable amount of damage in reality. This is especially true when it comes to credit score management.
If you want to ensure that you get an attractive personal loan interest rate when you need it in the future, then it's important that you are careful regarding the following 5 things:
1. Late Payments
You had a rough month and now you are falling behind payments. You pay the utility bills and the loan EMIs. However, you put off the credit card bills for another day and then completely forgot about them. Now, it's 4 days past the due date and while you can still pay the bills, it's going to cost you. Believe it or not, late payments are the biggest reason behind a low CIBIL score. It's such a small thing that people forget about it but if you want your CIBIL score to be protected then you can't afford to miss the payments.
2. Credit Utilization Limit
Credit cards are so convenient that it's easy to forget they come with a responsibility. For instance, while you may have a limit of say, Rs. 1 lakh on your credit card, you need to focus on another limit too, which is the credit utilization ratio. To avoid a bad credit score you must keep your credit utilization ratio low. So, borrowing the above example, if your credit card usage limit is Rs. 1 lakh then you should only use as much as Rs. 30,000 which is 30% of the limit. Many people know about the impact of credit utilization ratio on credit score but still forget about it. So, while you must certainly enjoy the perks of owning a credit card, you must use it wisely.
3. Loan Enquiries
Many of us have to take one kind of loan or another in life. However, when trying to land an excellent personal loan interest rate you can forget about the fact that your loan applications can interfere with your CIBIL score. When you apply for a personal loan at multiple lenders at the same time, which is usually the case when you are trying to get the best loan possible, these are recorded as "hard inquiries". Most credit rating agencies, including CIBIL, consider these inquiries a bad sign and can ruin your score as a result.
4. Becoming a Loan Guarantor
All decisions that involve money should be taken after careful planning and thinking. Yet, so many people forget that becoming a loan guarantor can have serious repercussions and extend a helping hand to a friend or a family member without thinking twice. Unless you really have to or you are 100% confident, you must never become a loan guarantor for someone. This is because if they default then you have to pay for it dearly in the following two ways: The bank will demand the pending loan amount that's owed by your friend/family member from you. Your CIBIL score will plummet significantly It's important that you think carefully about a proposal that involves you becoming a loan guarantor for someone. It's alright to say "no". After all, it's a big responsibility.
5. Ignoring Your CIBIL Report
When was the last time you checked your CIBIL report? If you can't remember, then you should worry. You can't know whether you are making progress or going downhill unless you have a reference point. So, if you are not monitoring your CIBIL report and if your score is plummeting, then there is nothing preventing it from reaching the lowest level possible. It doesn't matter if you have a low CIBIL score or a high CIBIL score today, you must never stop checking your CIBIL report on a regular basis. Taking your eyes off it can lead to terrible results. So, these were some of the common things that people forget about their CIBIL scores. However, it doesn't change the fact that they are important. So, stay careful and stay sharp. By noting the points given above you can protect your CIBIL score and make progress easily.