It hurts to see even the slightest dip in my CIBIL report or credit report. Every time it happens, most people surf the internet for hours to find the reason behind it with a solution. And you know what the most frustrating situation is? It’s when there is a drop in CIBIL score even when you are paying the dues on time. But don’t be so tense about it, because CIBIL falls due to many reasons working behind the scenes. You should know that even a new loan approval query can result in a CIBIL drop of 7-8 points or a credit card.
Why Credit Score or CIBIL Is Dropping Even When Paying Dues On Time?
A credit score is a 3-digit numerical number ranging between 300-900 and your CIBIL improves when it’s closer to 900. This number does not stay stable every time, it changes with every financial activity of yours. Moreover, even if you are paying EMIs on time, your CIBIL can drop a few points, it’s totally normal and depends upon one or more reasons which we are going to discuss in this article.
Here Are The Reasons Because of Which Your CIBIL Can Drop Even If You Are Paying On Time:
Using Most of The Credit Limit Every Time
The credit Utilization Ratio is an essential factor that can hit your CIBIL hard. Everyone knows that you will have to pay Credit Card dues on time for a great CIBIL score. But there is another factor that everyone should consider before using the credit limit. Every financial expert will tell you to spend only 30 percent of your total credit limit and not more than that. Because 30 percent credit limit utilization is considered an ideal one and more than that is considered as an overuse. But if it’s necessary, in case you need funds badly, then make sure not to go over 50 percent.
Limit Reduction From Lender
If you are having a bad relationship with your credit card lender then your credit limit may be reduced by them. And this becomes another reason for why your CIBIL score is decreasing even if you are paying on time. Moreover, a bad relationship with your lender can be due to many reasons which you will need to clarify with them.
If you are applying again and again for loan approvals, then it’s going to take a deep hit on your CIBIL score, even if you are paying the dues of your existing loans timely. Both the cases of multiple queries with one lender or multiple loan queries with multiple lenders will be added as hard queries in your credit report and will take a dig.
Closing An Old Loan Account
Always, think twice and only then go forward with closing an old loan or credit account. Creating a long credit history with the same lender is an ideal way to create a great CIBIL score and just like that closing an old credit account will drop your score.
Opening New Loan Account
Even if your loan requests are getting approved with multiple lenders, your CIBIL will fall. As per the guidelines, one should not apply for multiple credit lines or for multiple loan products in a short period of time.