A good credit score is like a magic wand in your hand that can help you get a loan whenever you want. What if you notice a fall in your credit score? It can be a matter of serious concern for you because having a low credit score can diminish your chances of getting a loan if you have a requirement in the future. This is what you must check.
Check Your Debt Records
Immediately check your credit report to know why your credit score dropped. It can help you track your financial records and activities. You can check your EMI repayment pattern, existing and past loan records, list of credit cards etc. There can be one or more reasons for a decrease in your credit score. Once you identify the reason, you can take corrective measures to reinstate your credit score.
Delayed or Default In Loan Repayment
Your credit score will normally get affected when you have either delayed the repayment of your debt for a longer period or defaulted on it. If you have delayed an EMI for the first time, you can improve the score again by being disciplined and repaying the EMI on time in the future. Being frequently late can bring down your credit score substantially. Timely payments, though, is in your hands. The more on time you are, the better your score gets.
Do You Often Exhaust Credit Limit?
Exhausting the credit limit leads to a high credit utilisation ratio (CUR). If the CUR on your card often crosses the 30% level, it may indicate you are credit hungry, and so your credit score may decrease. If your credit score has come down because of the high CUR, you can recover it by using your card regularly while keeping the CUR below 30%.
Too Many Hard Enquiries For loans
Having too many loans can stress your financial capacity and bring down your credit score. Even if your loan sizes are small, they may impact your credit score negatively. Similarly, too many enquiries for a new loan can also negatively impact your credit score. If your credit score has come down because of multiple loans, you may close some of your small loans to reduce your repayment obligation. Also, avoid multiple enquiries for a loan to prevent a negative impact on your credit score.
Cancellation Of Credit Card
Cancelling your credit card or closing your existing loan could be the reasons for a temporary drop in your credit score. Closing a credit line reduces the overall credit limit available to you. It also shortens the age of the credit lines available to you. Holding on to a card for many years impacts your score positively. These factors may impact your credit score negatively for a short period. Sometimes lenders may report inaccurate information to the credit bureaus, negatively impacting your credit score. You can avoid it by checking your credit report regularly.
A good credit score is essential considering the requirement of any loan. By avoiding some financial mistakes, you can ensure your credit remains healthy.
(The author is CEO, Bankbazaar.com)