Credit Score Below 700: Factors Affecting and How to Improve

Credit cards have become a part of our life and applying for them requires a good credit score. These credit cards and loan approvals depends on applicant’s credit score and credit history. Banks or other financial institutions check credit scores before approving any loan or credit card application. Credit score is the basic criteria for estimating your trustworthiness and repayment ability but what is a low credit score? In this blog we will discuss low credit score and factors leading to it in detail

What is a Low Credit Score?

A credit score is a numeric value that decides your creditworthiness. It decides whether you are eligible for a loan or credit card approval. The numeric value goes from 300 to 900 in which 300 is the lowest and 900 is the highest. A good or high credit score is above. The majority of banks and NBFCs regard a credit score of 750 or higher as desirable. Let's look at the different credit score ranges.

Factors that Lead to Low Credit Score?

Some of the factors that lead to lower credit score and reduced chances of loan or credit card approval. Here are some of the factors that can lower credit score:

Not Keeping Checks on Credit Score.

You should check your credit score on a regular basis, not checking it on time might lead to a significant drop due to mistakes in your credit report.

Delayed Bill Payments

The most important factor that leads to lower credit score is not paying credit card bills or EMIs on time. If you want to improve your credit score, you need to pay your EMIs and credit card dues on time and avoid minimal balance due. If you do not pay off the full credit card bill it will incur certain interest charges.

Maintain High Credit Utilization Ratio

Maintaining a high credit use ratio is an essential factor that leads to low credit score. Keeping low credit use means to use 15-30% of the credit card limit. Using your credit card limit to its fullest and having a high credit use ratio, harms your credit score. 

Closing Outdated Credit Cards.

A long credit history positively impacts your credit score. If you close old credit cards in such a case you will lose a strong credit history. So, it is best to not close old credit cards and keep them open as long as possible. 

Application for Multiple credit cards.

Having multiple credit cards makes you appear credit-hungry but rather than applying for them at once, apply for them over a period of time. Multiple credit card applications at a time leads to lower credit scores.

Not Reviewing your credit report.

The credit report has all the details including personal details, credit activities, credit accounts and payments. Not reviewing your credit report is important to track any sort of error in the report. These errors may result in lower credit score and poor credit history. RBI has made it mandatory for every credit bureaus to provide one free credit repost to all customers for a particular financial year.

Choosing Settlement than Closure

Lenders that write off debts swiftly notify the appropriate credit bureaus. Loan' settled' is considered low credit behavior, thus the entry remains in the borrower's credit history for a time, lowering their credit score by 75 to 100 points, depending on the credit bureau. Additionally, it makes it difficult for the individual to apply for fresh credit. The lender will be cautious and may even refuse to offer the loan if the borrower's credit report shows any 'loan settlement.' As a result, experts recommend closing the account rather than settlement. 

Failure in Collecting NOC.

A no-objection certificate (NOC) is a document that lenders provide to borrowers as proof that they have paid off all of their debts. You must ensure that you receive your NOC from the lender after repaying your loan. It aids in the resolution of any future disagreements or legal concerns relating to debt repayment. If you don't have a NOC, your credit score could suffer. You may become disqualified for loans in the future.

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Disadvantages of Low Credit Score

Credit score is an important factor for lenders when they are lending to know the borrower’s ability to repay. A low credit score just doesn't have effects on loan approvals but also has other disadvantages. Here are some of the disadvantages of having a lower credit score-

Limited Credit Card Options:

A bad credit score restricts from getting a new credit card because credit card issuers consider credit score as an eligibility factor when issuing credit cards. With a  low credit score, you can obtain a secured credit card. 

Higher Interest Rates:

Low credit score affects loan approvals and can lead to higher interest rates payment. People having a poor credit score are risky for lenders so to cover this risk they might charge a higher interest rate. 

Few Credit Benefits: 

Credit cards come with several benefits which might need a good credit to access those perks. You might miss out on these benefits like cashback, discounts, etc with a poor credit score. 

Loan rejections:

A bad credit history results in a poor credit score which is mostly below 700. This low score poses a risk to the lenders which results in loan rejection. If the lender approves the loan despite a lower credit score, he might give it at a higher interest rate, small loan amount, shorter payback time, etc.

How to Improve Credit Score?

Here are some of the measures that can be taken to improve Several measures can help you increase your credit score:

• Get a secured credit card for building credit score
• Get credit limit on your current credit card limit increased 
• Have a mix of secured and unsecured loans
• Monitor your credit report on a regular basis 
• Paying-off debts
• Reduce your credit utilisation ratio 

Conclusion-

A low credit score can hold you back from accessing financial products like loans and credit cards when you need them most. It not only affects your borrowing capacity but can also lead to higher interest rates and fewer financial benefits. However, the good news is your credit score isn’t permanent. With disciplined financial habits like timely bill payments, regular credit report checks, and maintaining a low credit utilization ratio, you can steadily improve it. Remember, rebuilding your credit takes time, but with consistent effort and smart decisions like using a secured credit card or clearing old debts—you can regain control of your financial health and unlock better credit opportunities in the future.

Apply for secured credit cards with Stable Money to boost your credit score.