Credit Card Use: These mistakes can spoil your CIBIL score badly

Credit cards offer customers the chance to fulfil their financial needs when there is a cash crunch. The financial instrument has a lot of advantages associated with it, including cashback offers and reward points or discounts on certain merchant payments.

However, credit cards also have certain disadvantages. Forgetting to keep certain simple pointers in mind while using your credit cards can lower your CIBIL score drastically.

What is CIBIL score?

A CIBIL score denotes an individual’s credit worthiness. It ranges from 300 to 900 and indicates your financial stability to lenders and institutions. A CIBIL score of 750 and above can help you secure credit cards and loans at favourable rates.

These credit card mistakes that can spoil your CIBIL score

High credit utilisation ratio: Credit utilisation ratio refers to the percentage of the total available credit that a person uses. A credit utilisation ratio below 30 per cent is considered good. If you use credit cards frequently, your credit utilisation ratio will go up and you could end up exceeding your credit limits. This may lead to more debt, a lower CIBIL score and poor repayment history.

Not repaying bills on time: If you don’t repay your credit card interest, loan instalments or bills on time, your debt will go up. This will affect your CIBIL score negatively and indicate poor financial decisions on your end. In turn, this can lead to problems if you apply for another loan or credit card. To ensure you don’t miss out on paying your bills, you can set up automatic repayment with your bank account.

Having too many credit cards: The credit cards become useful to manage your financial needs when you run short of cash. But, having too many credit cards can be seen as a sign of low fiscal prudence. Multiple credit cards mean that you may have problems staying ahead of your repayment deadlines and are in need of financial support. This can lower your CIBIL score drastically.

Excess debt: If you have a lot of pending dues or bills, your CIBIL score will go down. Banks and financial institutions will be hesitant to finance any loan or credit card for you if you have excess debt.

Not having a good credit mix: If you have only one type of loan in your financial history, it could indicate that you are unable to manage your finances. You should have a mix of secured and unsecured loans for a healthy CIBIL score.

Keep checking your CIBIL score at regular intervals to see any changes and plan your finances accordingly. This will help you maintain a good CIBIL score.