Mistake 1: Ignoring Your Credit History Entirely
One of the biggest errors is assuming credit scores are only for older individuals or those taking out massive loans. Your CIBIL score, a three-digit number from 300 to 900, is a summary of your creditworthiness. Many young adults are considered "New-to-Credit"
(NTC), meaning they have no history at all. This isn't a good thing; lenders have no data to assess if you're a responsible borrower, which can make getting your first credit card or small loan difficult. The first step is to start building a history. You can do this with a consumer durable loan for a smaller purchase or by getting a secured credit card, which is issued against a fixed deposit. These initial steps create the positive data trail lenders look for.
Mistake 2: Missing or Delaying Bill Payments
Payment history is the single most important factor affecting your CIBIL score, accounting for a significant portion of its calculation. Making payments on time, every time, is non-negotiable for a healthy score. A single late payment, even by a few days, can have a noticeable negative impact, potentially dropping your score significantly. Lenders view late payments as a red flag, indicating poor financial management. To avoid this, set up automatic payments or calendar reminders for all your dues, including credit card bills and any EMIs. Consistency is the key to demonstrating that you are a reliable borrower.
Mistake 3: Maxing Out Your Credit Cards
Getting your first credit card can feel like free money, but it comes with a crucial rule: don't use all of it. This is measured by the Credit Utilisation Ratio (CUR), which is the percentage of your available credit that you use. For example, if your credit limit is ₹50,000 and you spend ₹40,000, your CUR is a very high 80%. Financial experts recommend keeping your CUR below 30% to maintain a good score. A consistently high CUR suggests to lenders that you are overly dependent on credit, which can negatively impact your score. Use your card for small, manageable purchases and pay the balance in full each month.
Mistake 4: Applying for Too Much Credit at Once
When you're looking for your first loan or credit card, it can be tempting to apply to multiple lenders to see who approves you. This is a mistake. Every time you apply for credit, the lender performs a "hard inquiry" on your CIBIL report. While one or two inquiries won't do much harm, multiple hard inquiries in a short period can lower your score. It makes you appear "credit hungry" to lenders, suggesting you may be in financial distress. Instead of applying widely, research your options and apply only for the credit product you need and are likely to be approved for.
Mistake 5: Not Maintaining a Healthy Credit Mix
Lenders like to see that you can responsibly manage different types of credit. A healthy credit mix includes both secured loans (like a car or home loan, which are backed by an asset) and unsecured loans (like personal loans and credit cards). Relying solely on unsecured credit can be viewed negatively. While you shouldn't take out loans just for the sake of it, being mindful of this mix as you progress in your financial journey is beneficial. Starting with a secured card and later adding a small personal loan that you repay on time can demonstrate your ability to handle diverse financial obligations.
Mistake 6: Closing Old Credit Accounts
Once you have a few credit cards, you might be tempted to close an older one you no longer use. Resist this urge. The length of your credit history is a contributing factor to your score. An older, well-maintained account shows a long history of responsible borrowing. Closing your oldest credit card shortens your credit history's average age, which can cause your score to dip. If you're concerned about annual fees on an old card, try asking the bank to switch you to a no-fee version instead of closing the account entirely.
