Several warning signs can indicate potential credit score problems. Being aware of these signs can help you take proactive steps to address any issues before they significantly impact your credit score. For instance, Ajay Sharma, a 32-old-year dentist, never misses his credit card or loan repayment.

But he has already used the 90 percent of his credit card limit of ₹10 lakh. This is a warning sign that indicates a poor credit score on his report.

Some warning signs that you should be aware of:

Late or missed payments: Regularly making late payments or missing payments altogether on credit cards, loans, or other bills is likely to have a negative impact on your credit score. If you find yourself struggling to make payments on time, it’s vital to address the issue promptly.

Maxing out credit cards: Carrying high balances on your credit cards, especially if they are close to the credit limit, can negatively affect your credit score.

It’s generally recommended to keep your credit card balances below 30% of your available credit limit to maintain a healthy credit utilization ratio.

Applying for multiple credit accounts: Applying for multiple credit accounts within a short period can lower your credit score.

Each application typically results in a hard inquiry on your credit report, which can temporarily decrease your score. If you notice a sudden increase in credit inquiries, it may be a warning sign that you’re taking on too much debt or seeking credit due to financial difficulties.

Closing old credit accounts: Closing old credit accounts can affect your credit utilization ratio and reduce the average age of your credit history, both of which can impact your credit score negatively.

Higher interest rate: If you realise that your credit card interest rates have increased or you are being charged higher fees, it may be a sign that your credit score has declined. Lenders often adjust interest rates and fees based on changes in credit risk.

ALSO READ: What is the role of credit inquiries in determining your credit score?

If you notice any of these warning signs, it’s essential to take action to address the underlying issues promptly. This may involve creating a budget, prioritising debt repayment, seeking credit counselling, or disputing errors on your credit report.

Taking proactive steps can help you improve your credit score and financial well-being over time.

Frequently Asked Questions:

If you are often denied credit card or loan. What should you infer?

If you are often denied credit or offered unfavourable terms when applying for loans or credit cards, it means your credit score is lower than you realise.

Does the collection notice impact the credit score?

If you have started receiving collection notices or calls from debt collectors, it’s an indication that you have unpaid debts that have been sent to collections.

This can significantly damage your credit score and make it challenging to obtain credit in the future.

How can you improve the credit score?

You can work on improving your credit score by making timely payments, reducing outstanding debt, and maintaining a healthy credit utilisation ratio (CUR) before applying for a car loan.

Can you get car loan approved when the credit score is lower than 700?

If your credit score is lower than 700, you may still be able to qualify for a car loan, but you will in that case face higher interest rates or stricter loan terms.

Does being a guarantor impact your debt burden?

Being a guarantor doesn’t raise the debt burden but is seen as a potential debt. However, the lenders can consider the guaranteed amount while determining borrower’s creditworthiness.