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5 mistakes that will lower your credit score

For the sake of your home loan rateGetty Images
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For the sake of your home loan rate
Thanks to growing awareness around credit reports and scores over the years, the risk of defaults, delayed EMI and utility bill payments is widely known. Moreover, your credit score is not the only factor that banks use to determine credit-worthiness and risk. Your overall credit profile is key to getting good rates. Here are some lesser known aspects that can push up interest rates and lower credit scores.
​Over-investment in propertyBCCL
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​Over-investment in property
Real estate has traditionally been amongst the most favoured asset classes for Indians. However, the more may not always be the merrier. If you own two or more houses and are applying for a loan to buy another house, you will be charged higher interest rates- 25-50 bps more- even if your credit score is high. This is because lending to individuals with two or more houses is considered commercial real estate lending as per RBI norms. This would apply even if you are the joint owner of some properties.
Credit card as a borrowing toolThinkStock Photos
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Credit card as a borrowing tool
Credit cards are commonly seen as short-term credit instruments. However, the purpose for which you use your credit cards will affect your credit score. If you are clearing your entire credit card bill on the due date regularly, your credit score will be higher. However, if you are a credit card revolver, your score could be affected even if you are diligently paying the minimum amount due.
​High credit utilisationThinkStock Photos
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​High credit utilisation
You may have never breached your credit limit and have a perfect repayment track record on all loans. Yet, your credit score could can take a hit if you come close to exhausting your credit limit regularly. You can find a way around it by opting for two or three cards instead of one. When you do this, ensure that your utilisation never exceeds 40% of total credit limit available across all cards at any point in time.
High appetite for creditThinkStock Photos
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High appetite for credit
During the festive season, it is difficult to resist the temptation of discounts on expensive mobile phones or household appliances. No-cost EMIs only make it easier to give in to attractive offers. However, while such purchases can yield instant gratification, the tendency to overspend on the back of credit can drag down your credit scores. Ditto if a credit information company receives too many enquiries for your credit score from multiple lenders.
​Dishonouring ECS mandatesThinkStock Photos
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​Dishonouring ECS mandates
From a borrower’s perspective, his SIP in a mutual fund need not be his lender’s concern. However, credit scores could be affected if ECS mandates for SIPs bounce. Banks will start seeing you as an indisciplined individual. The same applies to non-payment of insurance premiums.

Finally, you can protect your credit scores by ensuring a clean slate when you close a loan or a credit card. Make sure you obtain an acknowledgment letter or a no dues certificate from the lenders certifying that you have cleared all your debt. Else, any failure on part of the lender or discrepancy in the credit bureau’s systems can come to haunt you later for no fault of yours.
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