Credit Score Dropped Suddenly? Check Potential Factors Impacting Your CIBIL Report

Have you ever experienced a decline in your credit score without any significant reason? It may seem strange, but experiencing fluctuations in your score is fairly common.

A credit score, or CIBIL score, is a three-digit figure that represents your creditworthiness; it usually ranges from 300 to 900. It summarises your credit history and shows your likelihood of repaying debts. Your credit score may have dropped due to several factors, like a late or missed payment, a recent personal loan application, or a large credit card outstanding, among others.

Here are six common causes for a drop in credit score and strategies for repairing a recent decline.

1.  Payment Defaults

One of the main causes of a low credit score is late or missed payments. About 35% of your credit score is based on your payment history, so even one late payment will have a significant impact. Your score will be further impacted if payments are 60 or 90 days past due. This should be eliminated by making sure to pay on time and setting up reminders.

2.  High Credit Utilisation Ratio

Your credit utilisation ratio, the percentage of your available credit that you are using, also determines how your score is calculated. Large credit card transactions might raise your ratio, which significantly lowers your score. According to financial experts, the credit utilisation ratio should be kept below 30%.

3.  Recently Applied For New Credit

Your credit scores and the possibility that lenders will grant you additional credit may suffer if you apply for a lot of credit in a short amount of time. A new hard inquiry might lower your score, depending on how many inquiries you currently have. However, any impact on your credit score due to multiple credit applications in a short duration will be temporary. Your credit score will improve again after a short span of six to twelve months.

4.  Closing A Credit Card

If you close a long-standing credit card account, your credit utilisation ratio can increase, which could lower your credit score. Keeping the card open may help you retain your credit limit and length of credit history, unless it has a hefty annual charge or entices you to spend excessively.

5.  Lowered Credit Limit

Your credit limit may be lowered for multiple reasons. If you have been using the card sparingly or constantly exceeding the limit, the lenders may revise the approved limit. Your credit scores may suffer, and your credit utilisation ratio may rise if your credit limits drop.  

6.  Inaccuracies In Credit Report

Misleading information, like a false payment default, on your credit report has a high probability of lowering your credit score. It can also indicate that you are a victim of identity theft. You have the right to contest facts that you are unaware of or that you think might be incorrect. It’s advisable to regularly track your credit report and raise objections with credit bureaus when needed. 

There are several effective ways to improve your credit score, which may have suddenly dropped for any reason:

1.    Make all upcoming payments on time. One way to help avoid missing a payment deadline is to set up automatic credit card bill payments.

2.    Unless required, avoid applying for new credit cards or loans. By doing this, your account won't be subjected to any further hard enquiries by lenders.

3.    Pay off outstanding debt and avoid using credit cards for major purchases until your utilisation ratio improves.

 Fluctuations in your credit score are not unusual. You just need to monitor your credit report regularly and take appropriate steps, if needed, to improve your credit score. A healthy financial habit can help maintain a high credit score.