Why your credit score isn't rising despite perfect payment history

Ranging from 300 to 900, a higher credit score can secure you better loan terms and lower interest rates. However, many individuals find their scores stagnant despite making timely payments.

Your credit score is more than a three-digit number; it reflects your financial health and plays a crucial role in determining your access to loans and credit. Ranging from 300 to 900, a higher credit score can secure you better loan terms and lower interest rates. However, many individuals find their scores stagnant despite making timely payments. If you’re facing this issue, here’s what could be holding you back and how to address it.

Common pitfalls impacting your credit score

High credit utilisation ratio: Using a significant portion of your available credit can harm your credit score, even if you pay your bills on time. Financial experts recommend keeping your credit utilisation below 30% of your total credit limit. This shows lenders that you’re managing credit responsibly.

Lack of credit mix: Lenders prefer borrowers with a diverse credit portfolio, such as a combination of credit cards, personal loans, and home loans. Relying solely on one type of credit may weaken your score. A varied credit mix demonstrates your ability to handle different credit types effectively.

Frequent credit applications: Applying for multiple loans or credit cards in a short period triggers hard inquiries on your credit report, which can lower your score temporarily. Limit new applications to essential needs.

Errors in credit reports: Mistakes in your credit report, such as unpaid loans marked as active or incorrect entries, can lower your score. Regularly reviewing your credit report and promptly disputing discrepancies is essential to protect your rating.

Co-signing loans: Co-signing makes you equally responsible for loan repayments. If the primary borrower defaults or delays payments, it could harm your credit score and increase your debt-to-income ratio.

How to improve your credit score

Reduce credit utilisation: Aim to use less than 30% of your credit limit to improve your score.
Keep old accounts open: Older accounts contribute to a longer credit history and lower utilisation ratios, positively impacting your score.
Limit new credit applications: Apply for loans or credit cards only when necessary to avoid frequent hard inquiries.
Monitor your credit report: Regular checks can help you identify and correct errors, preventing your score from stagnating.