Top Eight Credit Mistakes To Avoid

To err is human. But when it comes to building a credit history you cannot afford to err. Using credit cards responsibly may not sound appealing at first, but few credit mistakes on your credit card can hurt your CIBIL score for years. You can tread the credit path carefully by steering clear of these top eight credit mistakes.
1) Do not apply for too many credit cards at once: If you have made more than one application for credit cards within a short span, this will reflect in the “Enquiry” section of your Credit Report. This will negatively impact your credit score. This kind of behavior indicates that you are “credit hungry” and implies that you are constantly looking for credit, which is something lenders don’t encourage.
2) Longevity of credit card: When once you open a new credit card account keep it active at least for a year. The speed of “opening” and “closing” a credit card account reflects on your credit report and credit score, and lenders associate such a behavior to a bad credit management capacity. Twelve months of history on the credit card, whether used or unused, is good enough for a lender to assess your financial standing and repayment capacity.
3) Credit utilisation: Use only 30% of your credit limit. For instance, if you have Rs 1 lakh credit limit in your account, use only Rs 30,000 and not the entire limit. Your CIBIL credit score may get negatively impacted when your balances on credit cards are very close to the “High Credit” reflected on your credit report.
4) Keep a tab on add-on credit cards: If you have an add-on credit card for your spouse, children or relatives, it is important to monitor and regularly make payments on these cards as well. The responsibility of the repayment of dues on add-on credit cards rests solely on the credit card owner and impacts the owner’s credit profile.
5) Don’t use credit cards for cash withdrawals: While cash withdrawal itself is an expensive form of credit, it also reflects badly on your credit score.
6) Do not miss a payment: Credit cards are unsecured form of credit. If you have been using your credit card for over a year and have been regular on payments, you have actually built a good credit history on your credit report. This helps in building the lenders’ confidence on your repayment capability as you have shown a disciplined track record on an unsecured form of credit.
7) Monitor your credit card statements: The banks do make errors in credit card statements or there could be a possibility of someone misusing your card. So ensure you monitor them on a regular basis—if you notice an error call, your bank immediately.

(About the author: Rajiv Raj is the Director and Co-Founder of www.creditvidya.com)
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