Credit score is an alone factor that decides whether a bank or finance company will give you a loan or not. A credit score is a tool for determining your loan-repaying reputation for banks and finance companies.
When you apply for any type of loan from banks or non-banking finance companies, these institutions evaluate your credit score before deciding the loan amount and interest rate on it.
If you have a good credit score, then your chances of getting a big loan amount with a lower interest rate are high. However, if you have a bad credit score, your chances of getting a loan are low and anyhow, you manage to get it, the interest rate will be higher.
Below are the things that lower your credit score
Miss EMI
If you miss payment of your loan EMI, not only is a penalty imposed on you but it also indicates your inability to repay the loan.
No loan history
If there is no active loan account or credit card, then banks or companies have nothing to understand your credit score. You do not have any credit history based on which banks or companies can decide to give you a loan.
Not having any Credit Card
If you have not any credit card or you have never done loan repayment then banks will not be able to trace your repayment pattern. Not using credit cards can hurt your credit score.
Too Many Loan Inquiries
Making too many inquiries about the loan makes you a risky candidate in the eyes of the lender. If you make loan inquiries more than once, your chances of getting a loan reduce, because lenders consider it a sign of high credit risk, which affects your chances of getting a loan.
Lots of cards and loans
Having a lot of unsecured loans and multiple credit cards is considered a sign of wasteful spending by the customer. One problem with having multiple credit cards is that you have to maintain payments for each card every month. Your credit score reduces due to default in payment or late payment.
Use of EMI option after spending on credit card
Converting credit card payments into installments indicates spending more than the repayment capacity.
Negotiation for Loan Settlement
The loan borrower has to pay not only the principal amount but also the interest and other charges imposed by the lender. It is the primary responsibility of the borrower to repay the dues on time and the lender has the right to recover the entire amount.