Your credit health is one of the indicators used by banks to measure how trustworthy you are with paying back credit lines such as credit cards, personal loans, car loans, and home loans. It’s measured by your credit score, a 3-digit number which is an analysis of your credit history that takes into account factors such as:

• Whether you pay your bills on time
• Number of credit facilities you own and how much is owed to banks
• Types of credit facilities you have
• If you’ve applied for any new credit lines recently
• The age of your accounts

Simply put, a higher credit score ranging between 781 – 581, translates to good credit health and that increases the likelihood that your credit application is approved.

While it’s not the only indicator used by banks to determine whether or not to approve a credit facility, your credit score does provide a good benchmark of your abilities to keep up with payments in a timely manner as a paymaster.

That’s why it’s important to be proactive about maintaining a high credit score and one way to do that is to know the common mistakes that lead to low credit scores so that you can steer clear of them.

Mistake 1: Late or missed payments

Around 45% of your credit score is based on payment history, so it’s not surprising that late or missed payments have a big effect on your credit score. However, this remains as one of the most common mistakes made that lead to a low credit score. The silver lining here is that even though your credit score might take a dip in the beginning, once you continue with regular payments, your credit score will start to rise.

Mistake 2: Applying for multiple credit cards at the same time

While it may be tempting to apply for many credit cards at one go and then wait and see which ones get approved, this manner of applying for credit cards may actually hurt your chances of getting approved.

Multiple applications lower your credit score, so it’s best to apply to one or two of credit cards that best fit your needs and lifestyle. If those don’t pan out, wait a month or two before sending out your next round of credit card applications for the best chances of approval.

Mistake 3: Maxing out your credit card

Ensuring that your payments are made on time will help improve your credit score, but you also need to monitor your credit utilisation percentage. This refers to the average percentage of credit utilised across your credit cards, and this calculation accounts for 20% of your credit score.

Utilising all the credit in your credit card, i.e. maxing out your card, means that the amount owed to banks will be high, resulting in a lower credit score. Avoid this mistake by maintaining an ideal 10% utilisation percentage across your credit cards and watch as your credit score keeps to the high figures.

Mistake 4: Closing your credit accounts

On the flipside of Mistake 3 (maxing out your credit card), is closing your credit accounts. On the surface, this might seem like a good idea to increase your credit score because without a credit account you don’t owe the bank. However, what this also does is erases your good credit history, particularly if you were managing your account well. Long-standing credit card accounts give weight to your credit score and, if they have a low outstanding balance, they also help even out the average utilisation percentage mentioned above.

Mistake 5: Not having any credit lines

Another common misconception when it comes to credit health is, “If I don’t owe the banks anything, then my credit score will be high.” Unfortunately, that’s not true. Since your credit score depends on an analysis of your credit history, not having a credit history (also known as having a thin credit file) results in a low credit score too because there’s not much to base your analysis on.

Mistake 6: Not checking your personal credit report periodically

Mistakes happen, and your low credit score might be due to an error in your personal credit report. Which is why running through your personal credit report with a fine-tooth comb is worth your time. Monitoring your credit report also helps you stay on track with your payments and if you’ve missed out on any, you can take swift action to rectify that mistake. Take time out at least once a year to go through your credit report, and if you prefer more frequent updates, try a credit health monitoring service like Experian’s JagaMyID Plus for monthly credit health updates.

Get the upper hand and stay vigilant about your personal information and credit health safety by checking your credit reports frequently to ensure all your credit facilities are accounted for.