CIBIL score killers: Top 5 steps to your credit doom

By: | Published: October 6, 2015 6:28 PM

CIBIL score is the new buzzword in the financial word, especially since the Reserve Bank of India (RBI) Governor Raghuram Rajan slashed the repo rate and most banks in the public and private sector fell in line to slash loan rates for citizens to avail.

Everyone who wants to avail loans at cheaper rates is now looking at his/her CIBIL credit score! (Courtesy: Cibil)Everyone who wants to avail loans at cheaper rates is now looking at his/her CIBIL credit score! (Courtesy: Cibil)

CIBIL score is the new buzzword in the financial word, especially since the Reserve Bank of India (RBI) Governor Raghuram Rajan slashed the repo rate and most banks in the public and private sector fell in line to slash loan rates for citizens to avail. Now, everyone who wants to avail loans at cheaper rates is looking at his/her CIBIL credit score! And eagle-eyed bankers are looking for anomalies in CIBIL scores to deny people access to money. So, whether you like it, or dislike it, you cannot ignore it. CIBIL scores are important… period! For those who don’t want to get in trouble at the outset, we explain the numerous ways in which they can harm or even kill their credit score.

1. Late Payments:

You might have heard about the importance of paying back loans on time umpteen number of times. However repetitive it may sound, late payments are the biggest threat to credit score. Often one might wonder that a delay of a day or so should not matter, but it does. Late payments can reflect lack of planning or being irresponsible or being financially crunched. A recent RBI circular gives credit card holders three days of grace period to make their payments. So, be sure to use this to your advantage. For loans usually an ECS mandate or post dated cheques are taken by the lender so, it is the borrower’s responsibility to keep the account funded on the day the EMI debit is scheduled to happen.

2. Loans and credit cards with pending Issues:

Taking a NOC (No Objection Certificate) at the end of the loan duration is very important. Despite paying on time all installments, an open loan can harm the credit score. Often borrowers feel that since they have paid all their dues it’s a closed chapter but it is not so. There are times when, due to frequent movements from one city to another or simple forgetfulness one might not bother to take a NOC and this can pull down the CIBIL score. Similarly, one may surrender a card without checking for any dues (the applicant might be unaware); charges left unpaid keep getting accumulated and can harm the CIBIL score. In both the above conditions the customer may feel that he has done his bit and might be totally unaware of the pending issue/s.

3. Maxed-out credit card:

The question that comes to mind reading the above statement is; if I am able to pay on time then what is the problem if the credit card usage touches the sanctioned limit? Well, it is not as simple as that. A CIBIL score reflects the credit behavior pattern of a customer. A credit card bill touching the sanctioned limit frequently can be an indicator of being credit hungry, lack of planning or being addicted to credit cards. High credit card bills can result due to the simple oversight where the card holder has failed to enhance the credit limit with passage of time (which results in higher expenditures as well higher income) or the applicant has no control over his credit card spending and is prone to impulse swiping

4. Fraudulent use of credit card:

If the card falls in wrong hands or somebody is able to access your card details they are likely to use it indiscriminately. There are a host of ways in which a credit card can be misused; the first being it is stolen or left at a merchant establishment erroneously (where it is swiped without your knowledge), skimming where the magnetic strip details are copied to clone the card, using it at a fraudulent online site or phishing. The fraudsters obviously will like to maximize the usage before they are discovered which means that you might be saddled with bills that you cannot pay at the end of the month and your credit utilization goes very high. Both late payments and high credit utilization harm the CIBIL score. The sooner the theft or fraud discovered the less harm you are likely to suffer. Simple steps like applying for mobile alerts or not sharing information can prevent this.

5. Closing credit cards or foreclosing loans:

Closing a credit card lowers the overall credit limit available to the individual which can immediately cause the credit utilization to go high which in turn can cause the CIBIL score to plummet. Closing a credit card account especially if it’s an old one with a decent payment history is not advisable. Similarly, foreclosing a loan has a negative impact on the CIBIL score at least in the short term as the credit rating agencies are not sure of the status of your finances after one uses a sizeable chunk of money to prepay a bill. A longer, well serviced loan is better for the CIBIL Report.
So if you want to keep your CIBIL score alive and kicking (healthy) make sure you steer clear from the above mentioned common credit score killers.

By CreditVidya

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition