IndiaLends Advisory

By IndiaLends Advisory

Apr 05, 2019

7 Factors You Didn’t Know Could Ruin Your Credit Score

Credit Score is a vital part of your financial life. It is dynamic and varies quite a lot depending upon the financial decisions you take. Some actions have a positive impact while some have a negative impact on the Credit Score. Sometimes, the steps you take for the betterment of the Credit Score might have an opposite effect on the Credit Score.

Here are 7 key factors that could ruin your Credit Score-

1. Making Payment on the due date/last date

Credit utilization ratio plays an important role in determining the Credit Score. The more you owe, the worse it is for your credit score. Ideally, you should utilize below 50 percent of the available credit limit to avoid taking a hit to your credit score. You are reported to the regulatory or concerned authority somewhere around the billing cycle, which is before the payment is made. So, if you utilize your credit card limit to a large extent and pay the whole due amount on the due date, it could be comprehended as a high credit utilization ratio.

By doing a simple task, you can get rid of this problem. If you use your credit card towards the high side of the available credit limit, you can make an advance payment before the billing cycle or before the bill is generated. This way the credit utilization ratio will be low.

2. Signing for others’ loan or being a guarantor for a loan

A good credit score can be a bane sometimes; especially when a close friend or someone from the family asks you to co-sign a loan with them. Your name as a co-signer or a guarantor will help them get the loan, which might be difficult otherwise.

Helping someone is always good, but you should be careful while making this decision. If you co-sign a loan, it means you become equally responsible for the loan (debt). If the person who actually took the loan fails to repay in a timely manner, it will affect your credit score as well.

So, even if you are managing your credit score properly, a mistake from your co-signer might dip your credit score. It is advisable that until and unless you know a person very well or can make the repayment on behalf of that person, you should avoid being a co-signer or a co-guarantor on a loan.

3. Credit card closure

After clearing all the debt off of a credit card, it seems pretty logical to close the credit card account. However, you should make sure to not have balances on other cards. When you close a credit card, you lose the total available credit that you have while the outstanding debt on other cards or loans remains the same. This may lead to a hike in your Credit Utilization Ratio and thus a fall in your credit score.

Not using an account, but still leaving it active is not a good idea either. So, if your credit score is good and the account that you never use might tempt you to take an unnecessary debt, you must close the account. But make sure to pay the balance on other cards too so that the Credit Utilization Ratio remains low.

4. To get a discount while shopping, you apply for the store card

With the fast-paced life that we live, a rise in Hypermarkets and Supermarkets was inevitable. All the things we need under one roof, what else do we need, right? The employees at such stores, especially the cashiers are trained and advised to sell the store card to as many customers as possible. As a consumer, you sign up for them to get lucrative discounts. But there is a pitfall as well.

Retail store cards tend to have a high rate of interest. Having one or two such cards from the stores you shop often at will not be bad; however, applying for the card every time somebody offers a discount is a bad idea.

5. Nonfrequent credit score and credit report check

It is important to check your credit report and score frequently for various reasons. It has been noticed that a credit score can take a hit because of an error or fraud. If that issue is not sorted at the earliest, it may lead to a bigger problem. You can check your credit score for free at, which will help you in keeping a tab on your credit report. To maintain overall good credit health, your credit history plays an important role. It can be maintained by checking credit score at regular intervals. Checking your own credit score will not affect your score.

6. Not having any credit at all

The credit system cannot be ignored in society and the time we live in. We have to use it for our own good. Avoiding credits at all will not help in having a good credit score because there will not be any score. Many people are choosing this path of no credit but it does not help. Due to this, people have huge bank balances with low interest and no credit history whatsoever. The basic point is you have to use credit in order to have a credit history or report or score. It surely does not mean to get yourself into debt, but you should use the Credit judiciously.

If you do not have a credit history, borrowing money in the time of need might get difficult and even when you get it, the rate of interest will be very high.

7. Loan pay-off

You take a loan and you pay it back; that’s how it works. When you make all the repayments in a timely manner, it boosts up your credit history and score. However, when you pay off the loan or debt completely, it does not necessarily mean a rise in your credit score. In a loan, where you pay installments and it stops suddenly because you have repaid the whole amount, your credit score dips temporarily.

But, your Credit Score rises again because you have maintained a good credit profile by repaying the loan in a timely manner.

We hope you keep these points in mind, the next time you make a financial decision. Fluctuation in credit score is normal, but using your credit responsibly and making timely repayments will make sure you have a respectable credit score with a strong credit history.

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