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Top 5 Reasons Why You Must Be Having a Low CIBIL Score

It is no surprise that with bad credit activities you get a low credit score. A credit score is essential for borrowing and lending procedures. Based on one’s CIBIL score check, eligibility is determined and the loan is either approved or denied. It is vital to check the credit health of an individual before offering a loan. Especially for high-value loans, the need for a good credit score is crucial. Individuals with low credit scores show risk in repayment and approval becomes a dream. Without a score above 750, it becomes nearly impossible to get a home loan or a car loan.

Every loan provider has its own eligibility criteria and loan prerequisites. Based on a couple of factors, the loan is approved or denied. There are various reasons behind a low credit score. If you check your CIBIL score and find a score below 600, this is probably due to some factors and activities. Gaining insight into the top 5 reasons that are responsible for your low credit score. It will help you improve your score by avoiding these credit activities.

The top reasons for a low credit score

  • Delayed and missed payments

Payment is an important factor that can either help or hurt your credit score.If you find that you do not have a high credit score, this can be a good reason. As per various surveys conducted by loan providers, missed or delayed payments are responsible for low credit scores. Payment has a negative impact on your credit score because it accounts for 25% of your credit score.

It is vital to keep your payments on track. A good repayment history combined with a clean track record is all that you need for a good credit score. Delayed payments and missed payments are directly responsible for a low credit score. Whether you delay it for 30 days, 60 days, or 90 days, your credit score will be impacted. Delayed payment will never let your credit score improve. Missed payments will hurt your credit score enormously by dipping it by 100 points. Prioritize payments to improve your credit score.

  • Multiple loan applications

Multiple loan applications are not good for a high credit score. When you apply for multiple loans, it damages your credit score in a great way. Too many loan applications within a short period of time will damage your score. Loan providers check your credit eligibility by running a hard inquiry on your credit profile. These hard enquiries damage your score. With every inquiry, your credit score dips by 100 points. It is not recommended to apply for multiple loans within a short span of time. If you get a rejection, stop applying for multiple loans as the response will be the same. Rather, try to find the loopholes and work on them. Do not keep applying for multiple loan applications. Learn How to calculate business loan by using business loan calculator.

  • Closing credit accounts

A very common reason for a low credit score is the closing of credit accounts with a long credit history. New credit accounts do not have a positive impact on your credit score. On the other hand, closing an old credit account damages your credit score. Credit accounts should be kept open even when you do not use them. Therefore, it is highly recommended that you keep your credit account if you want to improve your credit score. Closing credit accounts can severely damage your credit score. It is vital to keep your credit account open even when you do not use it.

  • Keeping overdue and outstanding on credit accounts

It is very popular among individuals to pay their minimum bill amount or credit card balance and monthly instalments. By paying a minimal bill amount, you actually make your credit card bill or monthly instalment more expensive and damage your credit score. When you keep any overdue or outstanding amount on your credit card bill or existing loans, you end up damaging your credit score. With a pending amount, credit score improvement seems to be a distant dream for individuals. Therefore, the idea should be to make full bill payments without keeping any outstanding amount.

  • Credit limit overutilization

When you take out an overdraft loan or credit card, it comes with a fixed credit limit. When you over utilise the credit limit available to you, it shows you are an irresponsible borrower. This activity will not improve your credit score, but rather damage it further. Therefore, even under circumstances, if you end up exhausting your credit limit, you must make part payments and an extra payment in order to get back the available limit. This way, it will be easier for you to maintain your good credit score.

Finishing up

Check CIBIL score regularly in order to improve and track your credit score from time to time. There are various digital platforms that offer a free CIBIL score check option. This is one of the best ways to improve your score by detecting errors and tracking your credit activities.

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