You’re Not Defaulting, But You're Still Making These Mistakes With Your Credit Score

You’ve never skipped an EMI. You clear your credit card dues every month, or at least the minimum. You think, 'I’m not in debt, I should be a model borrower.' And then the bank hits you with an 8.5% interest rate instead of 7.5%, because your credit score just isn’t that impressive.

When it comes to credit scores, many people assume no news is good news. If you haven’t defaulted on a loan, paid your dues (at least partially), and don’t have a collection agency calling you, your credit score should be solid, right?

Not quite.

As Bhushan Padkil, SVP and Head - D2C Business at TransUnion CIBIL, puts it, "When it comes to credit worthiness, lenders want to look at the score. And the score is not just about defaults, it's about your entire credit behaviour."

In short, you’re not defaulting, but you might still be doing it wrong.

It’s one of the most common traps. You haven’t missed your credit card payment, but you’ve only paid the minimum amount due.

"While paying the minimum amount due will not hurt you in the short run, it builds up," says Padkil. "Late fees and interest payments pile up. Suddenly you don’t realise the amount becomes bigger. That’s the problem."

Kirtan Shah, Managing Director at Credence Wealth Advisors, breaks it down with an example, "A Rs 50,000 bill, with the minimum payment being roughly Rs 2,500. Out of that, only Rs 750 is principal and Rs 1,750 is interest. You’re still paying interest on the rest. And it compounds. It’ll take 10 years to close this loan if you keep doing that."

Even if you pay your bills in full, consistently using up most of your credit card limit raises red flags.

"If you are utilising credit and maxing out the credit, it shows the kind of stress that you have on your finances," says Padkil. "If you’re using credit well within the limit, 30% to 40%, that’s much healthier."

Keeping your credit utilisation ratio at 30% or lower can help boost your CIBIL score. But once you cross that mark, it could start working against you. That’s because a high utilisation ratio signals to lenders that you might be over-reliant on credit or struggling to manage your finances.

A consistently high ratio can make it harder to qualify for new loans or credit cards. So, it’s smart to monitor your usage and aim to use no more than a third of your total credit limit.

Closing that old, unused card might feel like a clean-up win, but it could actually shorten your credit history and drag down your score.

"For example, I have one credit card that I’ve been servicing for the last 10 years," says Padke. "If I shut that down, I’m shutting down that trade. It affects my profile’s vintage."

The longer your credit history, the better your profile appears to lenders. So instead of cancelling old cards, consider keeping them open with occasional, low-value transactions.

Paying off a loan early seems financially responsible. But it can actually work against you if your goal is to build a strong credit profile.

"I thought that if I prepay my loan, the banks will be happier," says Shah. "But from a scoring perspective, they’re not. Because they feel I don’t have a steady cash flow."

The key is repayment behaviour over time. A short, fully prepaid loan gives a lesser 'track record' than one paid over a longer tenure with consistent EMIs.

Even if you don’t take the loans, applying for several can signal desperation.

"When you apply for a credit, those inquiries get registered on the credit report," says Padkil. "But when you inquire on your own report? That doesn’t impact your score."

In short, soft inquiries (you checking your own score) are safe. Hard inquiries (a bank pulling your report for approval) can hurt if there are too many in a short time.

Credit score recovery takes time, but not forever. "Credit score and report is a trust artifact," says Padkil. "Trust is built in drops and lost in buckets." But the good news? It's not permanent. "Bringing the score again back to a very good level again will take a little bit of time... you have to show that behaviour consistently over the next few months."

Credit scores affect more than just loan approvals. Many lenders are offering interest rates based on your score range, so a difference of 70–100 points could change your EMI dramatically. Even a 1% higher interest rate on a Rs 50 lakh home loan can cost you over Rs 9 lakh more over 20 years.

So while the influencing community may have you chasing credit card rewards, Shah offers a sharp reminder, "Points are an output of a discipline that you follow, not the reason to swipe."

For the entire conversation on credit scores, tune into this episode of NDTV Profit's Moneywise.