Top 10 Reasons Why Your Credit Score Has Gone Down

Top 10 Reasons That Can Negatively Impact Your Credit Score

 

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• Skipping Monthly Payments

   If you believe that deferring your EMI payment and paying it with the next month's EMI will not affect your credit score, you are mistaken. Missed EMIs are recorded on your credit report and can be easily found if a lender does a credit check. Furthermore, if you miss many EMI payments, the financial institution will put your account under the "default" category, which will hurt your credit score even more.
   
  So, the next time you skip an EMI on purpose, keep in mind that any unfavourable information about your credit will stay on your credit report for seven years and will hurt your future borrowing ability.
   

• Declaring Bankruptcy

  Declaring bankruptcy is the most obvious cause of a significant decline in your credit score. Financial institutions will not approve your application if you are found to be bankrupt. This is because bankruptcy demonstrates a history of poor financial management. There is also a possibility that you won't be able to repay your obligations in the future because you don't have enough financial backup.
   

• Closing Old Account

   Old credit accounts reflect the way you handled debt in the past. Managing your credit account successfully for a long time demonstrates that you are a trustworthy borrower, and lending institutions prefer this type of account over others.
   
  Therefore, closing old accounts may lower your credit score by reducing the average age of your credit accounts. It also reduces your overall credit limit across your accounts. So, consider the ramifications before initiating this step.
   

• Exhausting Credit Limit

   There are numerous loan products such as credit cards, lines of credit, overdraft facilities etc. that provide you with a credit limit that can be accessed any time you want. However, using a high percentage of the credit available on your financing product or exhausting your credit limit can negatively impact your credit score. When evaluating your loan application, the financial institution will analyse your credit utilisation rate. You must keep your credit utilisation rate below 30% to qualify as a non-risky borrower. To calculate your credit utilisation rate, simply divide your credit limit by the monthly utilisation of your credit.
   

• Multiple Applications

   When you apply for many loans at the same time with several lenders, your credit score suffers. This is because it implies that you are experiencing financial difficulties and may find it difficult to make EMI payments in the long run. Therefore, limit your loan application to one every three months. Use the lender's loan eligibility calculator or read the eligibility requirements on their website to ensure that your loan is granted in one go. Applying with a lender whose qualifying criteria match your profile increases your approval chances.



• Changing Address

   Regularly changing your address reflects financial insecurity. It may give out the message that you are a risky borrower. However, changing addresses is not always under our control. Make sure, whenever you change your address, immediately update the same to your account. You must also check your credit score online to know how the address change has affected your profile.
   

• Not Updating Your Credit Report

   It is possible to find yourself in a situation where you have paid off all your current debts, but the lender is yet to share your debt closure report with the credit bureaus. Also, you may discover a mistake such as incorrect address details, age or misspelt names in your credit report. Be watchful of these things because if your credit report is out of date, not only will your credit score suffer but your loan application will also be denied. So, the next time you wonder, “Why my credit score dropped for no reason?” double-check your personal information on your credit report.
   

• Joint Loans

   If you are running a joint loan account or are a co-applicant with someone else who does not have a stable income and has a poor credit history, your credit score will also suffer. This is due to your financial ties to that individual. Furthermore, when you apply for a new loan, the financial institution will investigate your financial associate's credit history as well. Therefore, before you become a co-applicant or joint borrower with someone, you must run a free credit score check of that person. 
   

• Opening New Account

   Your credit score drops for a brief period when you open a new credit account. But it will quickly improve as soon as you begin paying your EMIs on time. However, when you open too many new accounts, your credit score suffers for a longer period. This is because it indicates that you are having financial difficulties.
   

• Fraudulent Application

   When applying for a loan, make sure you share authentic details and information only. If the lender discovers that the information you provided on your application is false, they will reject your application, and may also report you to the credit bureau, lowering your credit score.

Also Read: All You Need To Know About Your Credit Score

You can apply for a free copy of your credit report with any of the recognized credit reporting bureaus. You may also check your credit score online on the websites of major loan aggregators. To know more, follow the steps below.

• Visit the credit check page of any recognised credit bureau.
• Enter your name, mobile number, and e-mail id.
• You will receive an OTP for verification.
• Verify your age.
• Click on the submit button and the result will be displayed on your screen. 

 

How to Improve Your Credit Score?

Improving your credit score or maintaining a good credit score is no herculean task. You can easily manage your credit score by following the guidelines below:

• Examine your credit report regularly.
• Make timely payments on your EMIs.
• Make an effort to repay any previous defaulted loans.
• Requesting new credit should be kept to a minimum.

 

To Conclude

There could be several reasons for the drop in your credit score. Some factors have a short-term impact on your creditworthiness, while others can cause substantial damage that may take a long time to recover from. So, do not take your dropping credit score lightly and examine the reasons behind the falling number at the earliest.