What is Credit Report?
Before going any further let us understand the term credit report- A record of major transactions, purchases, credit card payments, etc. are collected and later analyzed to generate a summary called the credit report.
It is further utilized by lending companies to make the decision of lending money and also deciding the interest rates.
Some major components of a credit report are as follows:
- Debt
- Payment History
- Length of Credit History
- New Credit
- Credit Mix
The 5 dreadful mistakes that will affect your credit score are:
1. Late payments for Loans or Credit Cards etc
Delayed or late payments of credits, loans, rents, etc. One might take it lightly if they have missed the deadline of their payment of credit card bills, house rent, electricity bills all these may be minor issues which may leave a huge dent on your credit report.
These factors affect your payment history negatively, as your payment history record is one of the major components of your credit score.
2. Credit Utilization Ratio
One should always maintain an optimum credit utilization ratio as this affects your credit score. It has been observed that lenders prefer a credit utilization ratio of 40% or less.
Credit utilization is defined as the credit amount available and the percentage of the amount being utilized by you.
For instance, a person has 2 credit cards with a limit of 1000 on each and a total credit limit of BHD 2000. The person utilizes BHD 1500 of the available limit which is 75% credit utilization, which might affect your credit report negatively.
3. Bouncing Cheques
Bouncing cheques not only can leave a scar on your credit score but also can end the defaulter in prison along with a hefty fine. Once proven guilty the jury may order the verdict to be printed in the local newspaper thus bringing social stigma to the defaulter and his family.
If your cheque is bounced the bank may also send a collection agency to collect funds from you. All these will negatively affect your credit score.
4. Closing Credit Card Accounts and applying for New Cards
Closing your previous credit card accounts as these accounts show a picture of the length of credit history. Also, this might result in loss of credit limits available to you.
5. Not checking Credit Reports regularly
Credit reports should be checked periodically as these reports might contain some errors or inaccuracies which might affect your credit score.
Errors and inaccuracies might occur when a change in name, change in address, etc. are not informed to the agency. Errors might also be from some of the company’s side which should be immediately reported so that corrections in the credit score can be made.
6. Co-Signing Loans for family or friends
Co-signing loans can affect your credit score either positively or negatively depending on the borrower.
If the borrower does not make payments on time you might lose credit points and if he is regular in making the payments it will help you increase your credit score.
7. Not maintaining a good Credit Mix
It is possible to maintain a good credit mix by taking a mix of secured loans (Auto Loans, Home Loans) and unsecured loans (Personal Loans, Credit Cards). Unsecured loans should be kept to a minimum as these loans have a negative effect on your credit score.
In Bahrain, one can get a credit report from the Credit Reference Bureau. The Credit Reference Bureau is responsible not only for generating the credit report but is also responsible for collecting and gathering the data as well.
