Sudden drop in Credit Score? Checkout The Possible Reasons Behind This

Your credit score plays a crucial role in determining whether your loan application would be accepted or rejected. Many times willingly or unwillingly, we commit mistakes that can affect our CIBIL score negatively. Hence, it’s advisable to be aware of the factors that hurt your credit score. If you avoid doing the following things, it will help ensure a good credit score.

1. Paying late: Consistently being late on your credit card payments will hurt your credit score badly. Your payment history accounts for 35% of your total credit score. Hence, you should always pay your credit card bills on time.

2. Not paying at all: Completely ignoring your credit card bills is much worse than paying late. Each month you miss a payment on your credit card, you end up one month closer to having the account charged off.

3. Having an account charged off: When creditors think that you are not going to pay your bills or EMIs at all, they charge off your account. A charge off means your lender has completely given up on you. It can be also termed as written-off. However, this doesn’t mean that you are no longer responsible for the debt. This status is one of the worst things for your credit score.

4. High credit card balances: Another important part of your credit score is the level of debt, measured by credit utilisation. Having high credit card balances as compared to your credit card limit will increase your credit card utilisation and decrease your credit score. In other words, if your limit is Rs 80,000 and your balance is Rs. 75,000, you will not have a good score.

5. Closing old credit cards: The older the accounts, the better for your credit score. This is because lenders want to see a long credit history across multiple accounts to evaluate your repayment record. Even if you don’t use the card anymore, you should keep the card open because you have nothing to lose.

6. Applying for several credit cards or loans: Credit inquiries account for 10 percent of your credit score. If you apply for several credit cards or loan within a short period of time, your lender may interpret it as a sign of possible financial difficulty. If you have already applied for several credit cards within the past few months, it might be best to wait a few more months before filling out new applications.

Also Read: Mistakes That Can Ruin Your Credit Score

7. Co-signing of third party loan: You might have co-signed a third-party loan or stood as guarantor for a third party. Any default on their part can affect your credit score as the accounts will reflect in your credit report as well.

These could be the reasons for the decline in your credit score. Therefore, you should be careful when you apply for a new credit card online as well as offline. Check your credit score and confirm it adheres to the bank’s norms. Any rejection will dent your credit scores further.