It’s not easy to get a loan these days. This is because the banks are facing the problem of the rise of non-performing assets, a good portion of which belongs to the wilful defaulters. So, they no long sanction home loans, personal loans, for just anybody.
If you have recently applied for an ICICI bank home loan, SBI home loan, etc. then you perhaps already know the plight of the borrowers. That said, even if you are facing difficulties regarding getting a home loan, then there are many things you can do to increase your odds, especially increasing your credit score. But is closing your credit card account one of them? Let’s find out.
How does a credit card affect your credit score?
Depending on the number of credit cards you have, and the way you use them, your credit score can be affected to a great extent. The following are some of the ways how:
It’s been found that the people who have credit diversity in their credit report tend to have a higher score than those who have credit history based on only one form of credit. So, if you use credit cards and have repaid (or currently repaying) a loan in the past, then you will have a higher compared to someone whose credit history is based on a personal loan only.
A lot of people like to enjoy the minimum payment feature that comes with the credit cards. Although it allows you to avoid a fine or penalty by paying only 1% to 2% of the total monthly balance, the remaining amount is transferred to the next month as debt. So, if you frequently avail this feature, it could mean that you have a high debt, which can be detrimental to your score.
Age of Credit History
The age of your credit history plays one of the biggest roles in the calculation of your score. So, the longer if your history, the higher would be the score, and vice versa.
The rule of credit history applies to all forms of credit, personal loans, mortgage, and even credit cards. So, if you are using a really old account, and have managed it well, then it could be one of the biggest contributors to your current score.
The way you repay your loans or credit card bills also greatly affect your score. So, if you are punctual with the payments and seldom pay a bill or EMI past a deadline, then it’s very much likely that you have a good score. However, if you are often late with the payments, then your score can take some serious damage. If your payments are often late by more than 3 months (i.e. 90 Days Past Due), then the results are even worse.
Can closing a card help getting a home loan?
A lot of people think that having no credit is good for their credit score and helps to get an ICICI bank home loan, etc. However, that’s not true.
Good credit is good for your score, and your closing down of a card account may or may not help with your loan process. The following are some of the ways how:
As you can see, you must be extremely careful when you mull over closing an account. This is because it can actually hurt your creditworthiness. So, if you are unsure, it’s best to consult a professional before you make any move.
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