Failing To Get A Loan? Here Are The Top Credit Card Mistakes To Avoid

Many people are not aware of how important their CIBIL score is. A CIBIL score is a three-digit number that shows your credit history and how well you repay loans and credit card bills. This score usually ranges from 300 to 900, and it plays a major role when you apply for a loan or credit card. Banks and lenders check this score to decide if you are trustworthy and likely to repay the loan on time.

If your score is low, you may face difficulty in getting a loan approved. And, here are the factors that can impact your credit score

1. Missing EMIs

If you have an ongoing loan and miss even a single EMI, your CIBIL score can drop immediately. Regularly missing EMIs or defaulting on your loan makes it worse. This creates a negative record in your credit history. Over time, your score may become so poor that banks may refuse to lend you money, as they might see you as a high-risk borrower.

2. Taking a Large Loan

When you take a big loan like a home loan, it increases your total debt. This signals to banks that you already have a heavy financial burden. Lenders may worry that you won't be able to handle more debt, which can lower your score. So, after taking a large loan, it's important to manage repayments well and avoid applying for more loans immediately.

3. Applying for Loans Too Frequently

Many people apply for loans from multiple banks to compare interest rates. However, each time you apply, banks check your CIBIL score. These are called hard inquiries, and too many of them can reduce your score. In contrast, when you check your own score online, it is a soft inquiry and doesn't affect your score. To protect your credit score, avoid applying for loans too often.

4. Using Too Much of Your Credit Card Limit

If you frequently make large purchases or use your credit card limit close to the maximum, it increases your credit utilization ratio. A high utilization ratio suggests poor money management and can lower your CIBIL score. It's best to use less than 30% of your credit limit to maintain a healthy credit score.

5. Applying for Too Many Credit Cards

Just like loan applications, applying for multiple credit cards also results in hard inquiries. This can lower your CIBIL score temporarily. If you need a new card, apply only when necessary and avoid multiple applications in a short period.

6. Closing a Credit Card

You might think closing an unused credit card is a good idea, but it can actually harm your credit score. When you close a card, your total credit limit goes down. This increases your credit utilization ratio if your spending stays the same, which negatively impacts your score.

7. Paying Off a Loan Early

Surprisingly, even repaying a loan before its term can affect your score slightly especially in the case of secured loans. While early repayment shows good financial discipline, it may lower your credit mix or history length. However, this drop is usually small and temporary. Your score should recover in a short time.