7 Reasons Why Your CIBIL Score May Have Dropped Suddenly

A credit score is a three-digit number that determines your creditworthiness. It may affect your chances of loan approval. If you have maintained a good credit score so far but suddenly observed a drop, you must know the reasons. This blog discusses the 7 potential reasons why your credit score has dipped. Take a look!

Top 7 Reasons Why Your Credit Score May Have Dropped

1. Missed EMI Payment

Payment history is an important factor contributing to credit score. If you miss any repayments for your loan or credit cards, it is recorded on your credit report. Missing EMI due dates can reduce your credit score.

2. Credit Utilisation Ratio

When you make a big purchase with your credit card, it may push your limit over the edge. With this, your credit utilisation limit exceeds and can lead to a sudden drop in your credit score. To manage your credit responsibly, it is always advisable to keep your credit utilisation ratio to 30% of your credit limit.

3. Multiple Credit Inquiries

When you apply for several credits within a short period of time, it leads to multiple hard inquiries. These can negatively impact your credit score. Note that having multiple credits may be a good decision if you are able to manage them efficiently.

4. Closing a Credit Card

Closing a credit card reduces your available credit limit and thus may impact your credit utilisation ratio. It also impacts your credit history. The older the card, the more credit history is at risk. Credit utilisation ratio and credit history contribute to your credit score.

5. Prepaying Your Loan

Pre-paying your loan may impact your credit score as it may change your credit mix. Having a healthy mix of credit is good for your credit score. However, this doesn’t mean you must refrain from pre-paying your loans. You can develop a good credit score with a single credit.

6. Discrepancies in Your Credit Report

You must check your credit report on a regular basis for any errors. Errors or discrepancies can impact your credit score. It may include transposed numbers, payments reported to the wrong account, payments reported late, etc. To fix this issue you must raise a dispute.

7. Co-signing a Loan or Credit Card Application

Think carefully before you co-sign a loan or credit card application. Any defaults from the borrower, such as late payment or missed payment, have a negative impact on your credit score. If you decide to co-sign a loan or credit application, ensure to have access to the account and keep track of payments.

Also Read - How to Improve CIBIL Score to Get a Loan at Lower Interest Rates?

4 Ways to Rebuild Your Credit Score

Just like knowing the reason why your credit score has dipped is important. It is essential to know how you can rebuild your credit score. Here are 4 ways to fix your credit score:

1. Pay your bills on time.
2. Keep your debt-to-credit ratio low, i.e. 30% of your credit limit.
3. Avoid applying for credit unless it's necessary.
4. Stay informed about your credit score and raise a dispute if you see any error.

Also Read - How CIBIL Score is Calculated | A Step-by-Step Guide

To Conclude

A sudden drop in your credit score can be stressful. You know the reasons why your credit score has suddenly taken a hit. It may be due to missed payments, a high credit utilization ratio, closing your credit card, prepaying the loan, defaults on the co-signed credit, multiple credit inquiries, and others. Once you have found out the reason for the drop, start taking measures to correct it. Stay on top of your financial health with the Free CIBlL Score checker now!

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
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