Simply put, Credit Score is a simple 3 digit number. The credit score helps banks and NBFCs determine the level of risk attached to lending money to a potential borrower. It is a known fact that people seeking loans or lines of credit need to maintain a high credit score. The range of credit score is 300-850, where 700 and above is considered a good score.  

A good score works with your life goals and making smart financial choices and being informed is the best strategy to maintain a healthy credit score.

Why is using credit a good idea?

⇒ Using credit provides the flexibility of making expenditures when needed instead of when you can.

⇒ It splits large purchases into small re-payments over time instead of creating a sudden burden.

⇒ Using the credit you can better manage your monthly expenses.

While there are benefits of using credit, it also has a downside. There are some transactions, which not only pose a great financial mismanagement risk but also harm your credit score. Here’s a list of some transactions that are potential threats to your credit health.

⇒ Maximum utilization of credit –

Credit utilization plays a crucial role in maintaining a healthy credit score. It is advised that taking credit and utilizing it in an organized manner is important to build a credit score. However, overutilization of credit like buying something very expensive on loan or making big purchases from your credit card impacts your credit report.

⇒ Missing payments –

Having a history of missing payments for credit card bills, EMIs and other dues reflect poorly on your credit report.

⇒ Applying for multiple loans in a short period –

Every time you request for a loan or apply for a credit card, an inquiry is recorded in your credit record. Also, generating too many and frequent inquiries reflect on the record for around two years, which hurts your credibility with the lenders. Applying for multiple credit cards and/or small loans at the same time is considered to be a risk factor.

⇒ Frequent cash withdrawals –

Credit cards are not meant for cash withdrawals. Frequently using the credit card for cash withdrawal indicates money troubles.

⇒ Frivolous expenditures –

Spending a large amount on driving tickets or ‘challans’, alcohol, etc. make you seem like a high-risk borrower.

It is advisable to maintain a good credit score even if you do not want a loan or credit card. Because when you may need it, not having a healthy credit history might cause problems. Also, having a low credit score or none at all does not mean that you cannot get a loan or a credit card. You can still get credit, but the rate of interest will be higher than what someone with a high one might get.

Previous Article: 7 Factors You Didn’t Know Could Ruin Your Credit Score

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