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4 Ways You Could Be Wrecking Your Own Credit

06-Apr-2018 written by : FSI-Team

Wrecking Your Own Credit

Mr. Singh was a successful businessman who owned a premium furniture store. He was making a huge profit and was sure to use it well. He would frequently shop online for all kinds of things from clothing to electronics, and often dine out with family and friends, etc. thanks to his credit cards. However, at one point he felt the need to buy a new home and decided to apply for a loan at his bank.


Little did Singh know that his credit report was in a terrible shape, and as a result, his bank rejected the application without a second thought. It was at this moment he realized the importance of his credit report. The only problem was- he couldn’t understand what went wrong.

Singh isn’t the only one. A large number of people don't know how a score is calculated and what are the different kinds of factors that play a role in it. So, to help you out, the following are 4 different ways you could be damaging your own credit score and must be careful about:

1. High Credit Utilization

Do you use credit cards to make payments everywhere- e-commerce, Internet subscription, restaurants, movies, etc.? If your answer is in the affirmative, then it's possible your credit utilization ratio is too high which is bad for your report and score. But the question is- what is credit utilization?

Credit utilization is the ratio of the credit amount you use with a credit card and its credit limit. So, if you spend roughly around Rs. 55,000 per month and your credit card limit is Rs. 1 lakh, then your utilization is 55% which is quite high. Ideally, it should be no more than 35%.

It's important to note that using credit cards is not bad. In fact, avoiding to use credit card could detrimental to your score. What's important is that you use credit cards but only in moderation. This is the best way to increase credit score and to prevent an unfortunate day when you may have to look for loans for bad credit.

2. Late Payments

The way you handle your credit card bills and loan EMIs can have a huge impact on your credit score. You may think, "what bad a single late payment or two could do?". Truth is- a lot more than you can imagine.

When it comes to credit score calculation, then your repayment history gets the highest priority. In other words, if you have a history of timely repayments of loans and card bills, then you can easily expect a good score. On the other hand, if you have made only a few late payments in a year, then they could be enough to make a big dent in your credit profile.

The takeaway point here is that if you are often late with your payments, then don't- you could be wrecking your own credit!

3. Minimum Payments

Do you enjoy the facility of "minimum payments" which is generally offered with credit cards? If your answer is "yes", then you need to learn the truth behind this concept.

When you make minimum payments for your credit card bills, you save yourself from paying a fine. However, in doing so you transfer the balance to the next month. If you again make a minimum payment then this balance is transferred to the next month, and so on. The problem with this system is that you let your debt to accumulate which is extremely bad for credit. In other words- even though you may prevent yourself from getting on the bad side of the bank, you hurt your credit still.

4. Loan Guarantor

Loans for bad credit are nearly impossible to come by these days. This is the reason why a lot of people take help from others who have a good credit of their own. This is done by having them become loan guarantors. The only problem is- if the person for whom you have become a loan-guarantor is unable to repay the loan or defaults, then not only their credit score plummets, yours will too. Thus, it's another common way you could be hurting your own credit report.


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