Sometimes you can do everything right but still end up with a bad credit score. In fact, a lot of people get flummoxed over their bad credit scores despite paying their bills on time and not using up the entire limit on their card. Unfortunately, a striking majority of us do not understand how credit rating works and often remain in the dark over things that can have a big impact on our credit scores.
Here are five weird and lesser-known ways you could be hurting your credit score, without even realizing it.
Not having any loans or credit cards at all
If I don’t take out any loan from a bank or use a credit card, then my rating should not be impacted, right? Well, a lot of people have this preconceived notion that no activity on the credit front will not have any effect on their score. Unfortunately, that is not the case. Good credit scores are only possible if you have the right mix of credit products and have a healthy history of paying your debts on time. People who don’t borrow loans or use credit cards often up end up with poor scores due to lack of data to be assigned a score.
Canceling your credit card
Closing down an existing card can impact your credit score as it pushes up your credit utilization ratio, which is taken into account while calculating the score. It’s always prudent to hold on to a credit card account, especially if you have a good repayment record attached to it. The longer your credit record, the better your creditworthiness will be. If you have no need for a credit card anymore, make sure you pay off the entire outstanding amount before closing it.
[Related: 5 Ways credit cards can impact your credit score]
Ignoring your credit report
Your credit report contains vital information about your financial history, including payment track record, credit utilization, existing loans and debts, etc. Most people never avail services of credit bureaus and stay in the dark about their own creditworthiness. It is important to check your credit reports every now and then to take a critical look at your financial health and rectify discrepancies if any. Plus, residents of the UAE can now instantly download their credit report on the Al Etihad Credit Bureau’s new mobile app.
Applying for multiple loans & credit cards
If avoiding credit altogether can have a negative impact on your score, taking too many credit cards can also have a similar effect, especially if done in a short span of time. Whenever you apply for a credit card, the firm initiates a hard inquiry on your credit report, which ultimately leads to a dip in the credit score. Applying for too many loans at the same time can also have a similar effect and may give off the impression that you are financially overextending yourself. In fact research shows that people who apply for too many credit cards are often more likely to end up in financial trouble.
Waiting right until the due date to make payments
Most credit card issuers provide information on outstanding balance to the credit reporting agencies around the time the billing closes. In other words, if you don’t pay off your bill on time and wait until the due date, your report will reflect a high utilization ratio which will ultimately hurt your score. Even paying your balance after that will not have any positive impact. Paying off your balance well before the due date can keep your credit score healthy as the balance that will show up on your credit report will be lower.
