Credit card usage is growing rapidly in the country. Often, people pay their bills with credit cards in the hopes that it will increase their credit score. However, some people are disappointed when their credit score stagnates or continues to decline despite constant spending.
Here are some of the main reasons why a customer’s credit score may not improve despite paying their bills on time. Credit scores range from 300 to 900. Scores below 650 are considered low.
Avoid spending 30% more than the limit. Excessive use of credit cards can be the reason for your credit score to stagnate or decline. The ideal situation is to use 10-15% of the card’s limit. Spending more than 30% can freeze or worsen the score. This means that if your credit card limit is Rs 1.5 lakh, you should not spend more than Rs 45,000 every month.
Check credit reports regularly. Credit reports are not 100% accurate. These mistakes can distort your financial behavior. In such a situation, check the credit card report regularly and get any errors rectified.
Have both secured and unsecured loans as part of your debt. A balanced credit profile should have both secured and unsecured loans. Reliance on one type of debt like a personal loan or credit card hinders your credit score. In such a situation, secured loans like gold loan should be included in the loan.
Don’t apply for too many loans at once. Don’t apply for too many credit cards or loans in a short period of time. This increases inquiries on credit reports. This causes your credit to drop because it sends the message that you are in dire need of credit.
The impact of a negative filing can last for 7 years even if you currently make all payments on time. But if the old record is not good, its effect can be visible on your credit score for up to 7 years.
Do not close your old credit accounts. People often close their old credit cards, but doing so can make your score worse. Having an old credit card means you’ve been managing credit for a long time.