EMI: Are you paying your EMIs on time but your credit score is still falling? Are you making these 5 mistakes?.

People often think that if they pay their loan EMIs on time every month, their CIBIL or Credit Score will automatically improve. But the reality is a little different. Sometimes, even after paying EMIs on time, people are surprised to see that their credit score is either not increasing or is slowly declining.

In fact, simply paying EMIs on time is not enough. There are several other factors that determine your credit score. If you falter on any of these, it can negatively impact your score. Let's understand in simple terms the 5 major factors that can affect your credit score.

1. High Credit Utilization Ratio

The Credit Utilization Ratio (CUR) is extremely important for your credit score. CUR means how much of your credit card limit you have used. According to experts, the CUR should not exceed 30%.

For example:
If your limit is ₹1 lakh, try to keep your spending below ₹30,000. Repeatedly exceeding the limit signals to the bank that you are overly dependent on credit cards. This can affect your credit score.

2. Taking Personal Loans Frequently
Personal loans fall under the category of unsecured loans. If you frequently take unsecured loans like personal loans or credit cards, and have fewer secured loans like home loans or auto loans, your credit mix becomes unbalanced. The bank interprets this as excessive reliance on credit compared to your income. However, if you have taken both secured and unsecured loans as needed and paid all of them on time, it can actually benefit your credit score.

3. Becoming a Guarantor for Someone's Loan
If you have become a guarantor for a friend or relative's loan, you also share the responsibility. If the borrower fails to pay the EMI, that loan will also appear as a liability on your credit report. In such a situation, your own credit score can also drop, even if you have paid your EMIs on time. Therefore, be sure to understand the risks before becoming a guarantor.

4. Applying for loans or credit cards repeatedly
Every time you apply for a loan or credit card, the bank checks your credit report. This is called a hard inquiry. Too many hard inquiries in a short period signal to banks that you are frequently trying to borrow money. This can lower your credit score. It's best to apply only when necessary and avoid applying to multiple places at once.

5. Short Credit Age
Credit age refers to how old your credit history is. It is calculated from the date of your first credit card or loan. Lenders consider individuals with a credit history of 3 years or more to be more reliable. If you close old credit cards, your credit age may decrease, which can affect your score.

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