Negative items on the credit report are the aide Memoire of the mistakes made in the past. Sometimes, negative items are placed on a credit report in error. Whatever the reason might be, a negative report plays a spoilsport and adds unfavourable credit entries to the report resulting in poor credit score.
It is important to recognise that there are four major elements that lead to bad credit rating:
- Bad payment history: Late payments create trouble, intentionally or unintentionally, late payments can negatively affect the credit score. It is significant to pay the dues in time and set aside a particular amount to pay the dues.
- Far above the ground: High utilization of the credit reflects negatively on the spending habit of an individual. Increased burden on the credit card also means increased repayment burden.
- A number of credit cards and personal loans: It is important that there be a balance between unsecured and secured loans.
- New accounts opened in a short span of time: For multiple loans, there might be a new account opened. This behaviour might also mean that there is an increase in the debt burden, which in turn impacts the score.
To maintain a good credit rating, it is essential to maintain a good credit history. Following a few simple rules might help in improving credit rating:
- Timely payments are the key to good credit report: A good payment history will score you high on the credit report. Late payments are viewed negatively by the lenders and can thus affect the loan sanctioning.
- Always keep the balance low and do not overuse the credit available to you.
- Maintain a healthy balance between the secured and unsecured loans. The more unsecured loans, the more negative the report gets.
- Do not apply for new credit one after the other.
- Monitoring the joint accounts and co-signed accounts are equally important. Their negligence can affect your recognition evaluation.
In India, people do not review their credit history. Check your credit rating at least once a year to avoid unpleasant surprises when applying for a loan.
As credit report plays a vital role in loan sanctioning, it becomes mandatory to maintain a healthy and good credit rating. For lenders, credit rating is the first step to loan sanctioning. If they find a bad credit rating, they might reject the loan outright. It is disheartening to see a credit report with a rejected loan application; a healthy report creates that first impression in the mind of the lender. In case the information in the report is found faulty, it is advisable to fill in the dispute resolution form and get the information corrected or changed.
The onus of information lies with the banks and financial institutions and thus the credit bureaus are not responsible for it. Discrepancies can however, be notified,and the bureau can take it up with the respective financial institution. Beware; identity theft is another reason bringing negative items on the credit report. If someone uses your personal information to apply for a loan, and not payback the dues, it might result in a very low credit rating.