Surprising Things That Affect Your CIBIL Credit Score

Your CIBIL credit score evaluates your credit worthiness. While you might be paying your bills on times, it is not the only factor that affects your credit score. Here are some surprising things that could alter your credit report.

There are some surprising things that can hurt your credit score. Here are some things which will make you sit up and think.

Cutting down the number of your credit cards
If you thought applying for a credit card is what brings down your score, you are right. But cutting down on the number of cards that you hold also brings it down. While applying for a card leads to a hard enquiry, cancelling some credit cards mean your total credit limit goes down and your credit utilisation moves up. Shyam Vilas had a credit limit of Rs 2,70,000 from the five credit cards he had. His monthly credit card spend never went above Rs 50,000 per month. Thus, his credit utilisation ratio is 18.52%. Shyam decides to give up two of these credit cards and his new credit limit was Rs 1, 50,000. His spending pattern remained unchanged his credit utilisation ratio shot up to 33.33%. His credit rating was negatively affected not just because of higher credit utilisation ratio, but also because he lost credit history that he had with the two credit cards he surrendered.

Requesting for an increase in credit limit
You may think that the credit limit that the bank has allotted on your credit card is low and hence request for a higher limit. When you make such a request, the bank will ask CIBIL for your report to assess your credit standing. This means it is a ‘hard’ enquiry which will bring down your credit score. So unless you really need it, do not request for a higher limit.

Being super cautious about using your credit card
Many of us think that credit card usage might lead to excessive spending and bad credit habits. The fact remains that without spending and repayment history, the credit bureau is unable to rate your credit standing. Lack of credit transactions or no transaction will make your credit file inactive on the Bureau; it brings down your credit score. So it’s best to make regular small transactions, say grocery purchases, and pay the credit card on time.

Not checking your credit report for mistakes
It is always good practice to check your credit report for any errors every six months or so. Often there is misreporting or delayed reporting by banks, which may result in faulty information on your credit report and a reduced credit score. For instance, you may have had a delayed payment in the past which shows up in your credit report, but the last couple of years all payments have been on time. If you can procure a document from your lender that there is no outstanding payment and all EMIs have been paid on time your credit report can be rectified.

Having no loans
Most of us have credit cards but not everyone has a loan account. Your credit score benefits from a good credit mix both revolving credits (credit cards), as well as non-revolving or EMI-based credit (a home loan). It shows your diversity in handling different types of credit.

About the author: Rajiv Raj is the director and co-founder of www.creditvidya.com.