What factors impact credit score negatively?
Poor credit score is a direct result of poor credit behaviour and financial indiscipline. It’s important to identify poor financial behaviour to make things right.
The most common factors which impact Credit Score negatively are:
Late Repayments: Even one or two delayed credit card bill or loan repayments can affect credit score negatively. The more the number of delayed payments, the greater is the negative impact on your credit history and credit score. Though you may repay the amount later with a penalty to the lender, it gets reported by the lender as delayed payment to the credit bureaus.
Missed payments: Repayment history is the most important factor contributing to Credit Score. Even a single default can hurt your credit score, making it difficult to avail credit in the future.
Poor Credit Card Utilization: Maxing out credit card limit implies you are credit hungry which could impact your credit score negatively. Experts recommend that having a credit utilization ratio of 30% and below is good for your credit score. In case you use your credit card often, you can request for a higher credit limit on your credit card or get another card to balance the credit utilization ratio.
Multiple Loan Applications: A hard enquiry can negatively impact your credit score; so one must keep tabs on loan applications. Applying for the same loan with multiple lenders can work against you as multiple enquiries are made. Hence, apply with the lender only where the approval chances are higher.
Administrative Error: Occasionally, there may be an administrative error that results in wrong information being recorded on your credit report. Sometimes, this might be the result of fraudulent activity as well. For no fault of yours, these errors could lead to a lower credit score, signaling to future lenders that you have bad credit.
Foreclosure: It happens in secured loans, wherein the lender sells the property through auctions to retrieve the outstanding loan amount. It can significantly reduce your credit score.
Written-off: The lender may write off your loan or credit card account if you have continuously defaulted on repayments for more than 180 days. This gets reported to the credit bureaus by the lender, and your credit report shows written-off status. This can affect your credit score negatively and make you ineligible to avail loans.
Settled: When you are unable to repay the loan, the lender allows you to settle the loan account for a mutually agreed amount which would be lower than the outstanding loan amount. This is a negative issue which will impact your credit score negatively.