Credit score plays an important role in securing a credit card or raising a personal loan on convenient terms. And when someone’s credit score is absymally low i.e., below 600, s/he finds it hard to get a loan at a low rate of interest.
What will you do when your credit score is lower than 600? Of course, you will need adequate time to improve the score. Importantly, you need to first identify the reasons that are responsible for a poor credit score.
Typically, low score can be attributed to non-payment of credit card bills or default in loan EMIs, or both. Sometimes, a customer may find his score low because of lack of credit history. There could be other reasons also such as high credit utilisation and payment of minimum due of credit card, among others.
Here we list out the key reasons for poor credit score:
I. Payment History: Late or missed payments is the biggest factor. Even one missed payment can drastically damage your score
II. High credit card balances: Using more than 30 percent of your available credit (credit utilisation ratio) can hurt your score.
III. Maxed-out credit cards: Having credit cards near or at their limits is particularly damaging.
IV. Short credit history: If you have only had credit for a short time, especially under two years, it can bring down your credit score.
V. Limited variety of credit: Having only one type of credit (like just credit cards, with no loans) can adversely affect your score.
VI. Too many hard inquiries: Applying for a lot of new credit in a short time can lower your score drastically.
VII. Errors on credit report: Sometimes incorrect information such as wrongly reported late payments or accounts that are not yours can bring your score down.
(Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit. )