Things to Avoid If You Want to Maintain a Good Credit History
Last Updated : Feb. 11, 2025, 3:42 p.m.
In order to maintain a good credit history, there are certain wrong steps that you must not take. It is because, in the long run, they will result in hampering your access to credit when you want to obtain a loan or a credit card . A bad credit history means that you may not be eligible to obtain credit and even if you do so, your interest rates will be high. It may seem that the financial mistakes that impact your credit history are minor, but they can have a lasting impact. Let us now read on to find out the things to avoid in order to maintain a good credit history.
What are the Dont’s for a Good Credit History?
Not Checking your Credit Report Regularly
By not monitoring your credit report regularly, you are ignoring errors and potential issues that can significantly hurt your credit history. View your credit report for free on Wishfin. When you examine your report, look for items that have the potential to hurt your credit score or that are already creating a drop in your credit score. These issues can include high balances which are mistakenly entered, active accounts not owned by you due to identity theft, errors in personal or account details, duplicate accounts, late payments not belonging to you, etc. Once you identify the issues, raise a dispute with the credit bureau and get them rectified.
Untimely Bill Payments
Your payment history is the most important factor that affects your credit history. This means that even missing a single payment by 30 days or more can damage your credit score severely. Further, late payments usually stay on your credit report for seven years. While the impact may reduce over time especially if you have started paying on time going forward, it can still hurt your chances of obtaining potential credit. So, make sure to pay all your bills on time. To ensure that this is done smoothly, automate your payments or set up payment alerts with your lender.
Making only Minimum Payments
Making only minimum payments on your credit card bills may look easier. But, the outstanding balance will accumulate interest. As your balance increases, your credit utilization rate will increase, and this will damage your credit history. Experts recommend that you use only within 30% or 40% of the total available credit. The lower your credit utilization rate, the better it is for your credit history and credit score. Make it a priority to pay your existing credit card debt using other payment modes. In this way, you can reduce your outstanding credit balance. If you have multiple credit balances, then pay the one with the highest interest rate first or tackle the smaller balances first increasing your payment rate with each debt.
Applying for Multiple Lines of Credit In a Short Duration
Every time you apply for credit, the lender conducts an inquiry on your credit report. This is called a hard inquiry. A single hard inquiry will reduce your credit score by a few points. However, having multiple hard inquiries in a short duration will impact your credit score drastically. There will be a great negative impact on your credit history. If you want to have multiple lines of credit, give a time of 6 months at least between 2 applications. The simplest solution is to analyze whether you really need the additional line of credit and then apply for it if really necessary. In this way, you will avoid paying interest charges unnecessarily.
Closing Old Credit Card Accounts
When you close a credit card account which has a good credit history that is one which does not even have a single missed payment, then it impacts your financial status negatively. Whether a good or bad credit history, it will remain on your credit report for 10 years. So, a credit card account which is in good standing will demonstrate to lenders about your responsible financial behavior. However, when you cancel the credit card, you are deleting good repayment history from your credit report. Your total available credit limit will also reduce, thus causing your credit utilization rate to go up. This is in turn highly detrimental to your credit history and credit score. Further, your credit score will no longer benefit from the additional on time payments you will make over time. Before you close a credit card, understand the reason for closing it. If you feel that you are tempted to overspend because of it or are not getting the benefits worth the annual fee paid, then you can go ahead and close it.
Choosing a Longer term for your Vehicle Loan
A longer vehicle loan term may seem ideal as it lowers your monthly payments. However, it can strain you financially as you will have to pay more interest over a longer period. This can slightly lower your credit score and hence impact your credit history in a small way compared to a shorter loan term.
Making Hurried Decisions That Harm Your Budget
Not checking your accounts regularly and not being proactive about finances will harm your financial status as well as your credit history. You must learn how to use your budget wisely to save and pay your debts. Overall, you must handle your cash flow judiciously. Especially if you have a higher income, you may sometimes become complacent which is not good for your future financial life. Hence, always analyze each and every step that you take about spending, applying for new credit etc. Ensure to keep it within your budget.
Benefits of Maintaining Good Credit History
Lower Interest Rates: One of the benefits of a good credit score is that you can get a loan at a lower interest rate. The score is a numerical representation of your credit history. The history will give the lender an idea of the borrower in you. And if it is good, the lender can offer lower rates on the loan.
Easy Approval: When you maintain a good credit history, lenders approve your credit card or loan request faster compared to someone struggling with a poor credit history. You just need to follow the procedure and submit the documents and the rest will be taken care of by your credit score.
High Loan Amount: You can borrow a high loan amount if your credit score is good because then it will be easier for you to get funds from a bank or NBFC.
Frequently Asked Questions (FAQs)
