Creditvidya.com | November 23, 2014 | Hindu Business Line
When it comes to building a credit history, you cannot afford to err. Using credit cards responsibly may not sound appealing at first, but few credit mistakes on your credit card can hurt your Cibil score for years.
So, to make sure that you tread the credit path carefully, here’s a compilation of credit mistakes to avoid.
First, do not apply for too many credit cards at once. If you have made more than one application for a credit card within a short span, this will reflect in the “enquiry” section of your credit report. This kind of behaviour indicates that you are “credit hungry” and implies that you are constantly looking for credit, which is something lenders don’t encourage.
Second, the longevity of your credit card matters. So once you open a new credit card account, keep it active at least for a year. The speed of ‘opening’ and ‘closing’ a credit card account reflects your credit score and lenders associate such behaviour with bad credit management capacity. Twelve months of history on the credit card, whether used or unused, is good enough for a lender to assess your financial standing and repayment capacity.
Third, don’t stretch your card to the limit and keep an eye on your credit utilisation. Use only 30 per cent of your credit limit. Your Cibil credit score may be negatively impacted when your balances on credit cards are very close to the “high credit” reflected on your credit report.
Fourth, keep tabs on add-on credit cards. Monitor and regularly make payments on these cards as well. The responsibility of the repayment of dues on add-on credit cards rests solely on the credit card owner and impacts the owner’s credit profile.
Fifth, don’t use credit cards for cash withdrawals. Apart from being an expensive form of credit, this can also reflect badly on your credit score.
Sixth, do not miss a payment. Credit cards are unsecured form of credit. If you have been using your credit card for over a year and have been regular on payments, you have actually built a good credit history on your credit report and ultimately a good Cibil score. This helps in building the lenders’ confidence on your repayment capability as you have shown a disciplined track record on an unsecured form of credit.
Seventh, regularly monitor your credit card statements. Banks do commit errors while preparing credit card statements or there could be a possibility of someone misusing your card. If you notice any error, call your bank immediately.
Contributed by Creditvidya.com, an online educative tool to help customers stay on the top of their credit
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