Your credit history affects your day-to-day life in ways you might not even know about. In addition to helping assess what credits or loans you are offered and at what interest rates, it also plays a vital role in ensuring home rentals or job offers, among other things. This is why keeping tabs on your credit history with the help of the CIBIL score checking for free is essential.

It is crucial to ensure responsible credit behavior in most cases. Moreover, you should also avoid some common mistakes that might cost you significantly in the long run. The CIBIL score is a major indicator of your overall financial health. Therefore, responsible credit habits are crucial to developing and maintaining a healthy profile. 

Part of the process is to analyze how specific actions can affect your credit profile and to avoid prospective mistakes that can hinder your progress and even damage your credit score in the long run.

What are Common Credit Mistakes to Avoid?

After your CIBIL score check for free, if you find that you need to improve your credit score, you should aim to avoid some common mistakes. Here are some:

1. Not Paying Attention to Your Credit

Keeping a check on your credit is a great way to not only keep track of your overall progress but also to identify potential issues. In this way, you can address them before they end up doing major damage. When you do not check your credit regularly, you can miss out on warning signs of some major issues.

With Stashfin’s free CIBIL score-checking feature, you can easily access your CIBIL score and credit report. You can check the same as often as you want. As you maintain a check on your credit health, look for specific items in the credit report that could potentially hurt your credit score or might already be doing damage. Some of the common issues that you might encounter are accounts you do not recognize, missed payments, or high balances.

2. Making Only Minimum Payments

Minimum payments on your credit card might make a debt appear more affordable. However, higher interest rates can eventually strain your overall budget. As your balance increases, it can eventually hamper your credit because it tends to increase the credit utilization rate or the existing percentage of available credit you might use at a given time.

As the card balance goes above 30% of the credit limits, the effect on your credit score also increases significantly. Usually, the lower, the better. You should prioritize paying down your existing credit card debt while leveraging other payment methods until you reach your financial goal. In case you maintain multiple credit card balances, you can manage your debt with the snowball approach or the avalanche method.

3. Not Paying Your Bills on Time

Payment history is the most important factor in a CIBIL score. This implies that missing even a single payment by more than 30 days can damage your credit significantly. To top it all, late payments usually remain on your credit reports for as many as 7 years.

While the overall impact on your credit score can decrease over time, especially if you continue to pay the bills on time, it can still affect your credit growth. To make sure that you are paying your bills on time, ensure payment reminders or set up an auto-pay feature with the bank or the lender.

4. Applying for Multiple Credit Cards at Once

Every time you apply for credit, the lender will run an in-depth inquiry to analyze your credit report. When you wish to apply for specific types of loans, like auto loans or mortgages, having multiple inquiries in a shorter period will not cause much harm as they will be counted as a single inquiry while calculating your credit score.

However, this is not the case with credit cards. When you apply for multiple credit cards in a short period of time, every inquiry will count against you. Multiple inquiries can have a compounding effect on your CIBIL score. 

If you wish to own multiple credit cards, it is recommended to space out the credit card application by at least 6 months. At the same time, think about researching different types of credit cards and understanding your chances of getting an approval. 

5. Closing Credit Card Accounts

When you close a credit card account in a good format, implying you have never missed a payment, your credit history will remain on the report for almost a decade. However, as you cancel a credit card, you lose the available credit immediately. This might increase your credit utilization rate and hamper your credit score. 

Moreover, your credit score might no longer benefit from the extra add-on payments you might make during the period. This might not hurt the credit score but might affect its growth. 

Before you think of closing a credit card, it is recommended to consider your reasoning carefully. For instance, if you have struggled with overspending and do not wish to repeat it, a prospective hit to the credit could be worthwhile. The same stands true for a card with an annual fee as you are not getting enough value from the account. 

6. Taking On Unnecessary Credit

Taking out a loan to purchase a house or a car might be unavoidable. In some cases, student loans are also necessary to pay off college fees. 

However, if you aim to leverage student loans for non-education purposes, you can end up accumulating more debt than you can afford to repay. This will eventually put you at risk of late payments or even default. 

The best solution is to apply for credit when you need it the most. In this manner, you can avoid higher interest charges without any financial strain.

Conclusion

It can take several years to build your credit score to the point you want it to be. Checking your CIBIL score regularly and being updated about your credit card balances can help you build and manage a strong credit portfolio.