Is your credit score not improving despite making timely payments? These could be the reasons

People are often surprised to find that they're paying every EMI and credit card bill on time, yet their credit score remains stuck around 500. Loans aren't easily available, and banks aren't willing to offer better interest rates. 

The truth is, simply making payments on time isn't enough. There are some small habits that can unintentionally damage your credit score.

Many people believe that a few late payments don't matter. However, every late payment is recorded on your credit report. If an EMI or card bill is paid past its due date, it can have a lasting impact on your score. 

Repeated delays can lead to banks considering you a risky customer. It's best to set mobile reminders or enable auto-debit to ensure you don't miss a single payment.

Excessive credit card use

Suppose your credit limit is ₹100,000 and you spend ₹70,000-₹80,000 every month. Even if you're paying the full bill, banks still consider this a sign of financial stress. 

According to credit experts, utilizing less than 30 percent of your total limit is considered safe. Higher utilization indicates a higher debt dependence, which can lower your score rather than increase it.

Settlement and ignoring old dues

Many people think that the matter is over after a loan settlement or write-off. However, the reality is that the settlement tag reflects negatively on a credit report. 

Similarly, any outstanding dues, even small ones, continue to drag down the score. Clearing old dues completely and updating the report can be a major step towards improving your score.

Applying for loans or cards repeatedly

Every time you apply for a loan or credit card, the bank checks your credit report. This is called a hard inquiry. A large number of inquiries in a short period of time may lead the bank to believe you need the money urgently. Consequently, the application may be rejected and your score may drop further.

Lack of a healthy credit mix

If your credit report only shows past defaults and no active loans or cards, banks may not understand your current behavior. Taking out a small personal loan or a credit card with a low limit and managing it responsibly strengthens your profile. This will gradually lead to score improvements. 

A credit score of 500 or less isn't a permanent punishment. It can be improved by adopting the right habits and controlling your spending and payments.

Be patient, as credit scores don't improve overnight, but taking steps in the right direction can definitely bring about change.

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