Top Reasons Why Your CIBIL Score is Going Down

Your CIBIL score is subject to your credit behaviour – and hence it changes the way you manage your credit. Lenders check your CIBIL scores when you apply for a loan. So, if you are planning to buy a home and are looking for a housing loan to fund your needs, you may find it difficult to get one on favourable terms without a good CIBIL score.

Also, if you are paying your dues regularly and keeping your credit utilisation low but still find your credit score rolling down, here could be some reasons.  

Five Reasons Your CIBIL Score is Going Down

There are many factors that affect your credit rating. Here are a few facts that can help you understand how your CIBIL score may experience a sudden drop: 

1. Multiple Lines of Credit 

Holding numerous credit cards, secured loans and unsecured credit can hurt your CIBIL score as these are signs of heavy debt. Lenders usually calculate your debt-to-income (DTI) ratio when considering loan approvals. A higher DTI proves that you already have several EMIs and bills to pay, and they may be unwilling to extend a loan.  

2. Delayed Payments 

Delayed payments can also adversely affect your CIBIL score and credit history. Your previous repayments convey how seriously you take your debts. Therefore, honour your debts on time and monitor your accounts to ensure no payment is missed.  

3. Increased Credit Limit 

In certain instances, a request to raise the credit limit may lower your score because this can look as if you are overly dependent on credit. Thus, keep an eye on your credit utilisation, maintain low balances and obtain new credit in moderation only when required. 

4. Not Having the Right Credit Mix 

A healthy credit mix of both secured and unsecured loans spanning short and long tenors contributes to a higher credit score. 

5. Under-Utilisation of Credit Cards 

Many people are wary of using credit cards assuming that it may lead to bad credit habits and unnecessary spending. However, zero transactions on credit cards could render your credit file inactive, downgrading the CIBIL score. 

Also Read: 10 Tips to Help You Improve Your CIBIL Score  

Understanding the Anatomy of Your Credit Score

Your credit score comprises four major factors with each assigned a different weightage. This includes:

Payment History

One’s payment history is the biggest contributing factor to the credit score. It records all your credit payments such as loan EMIs and credit card bills. If you regularly clear your outstanding bills and instalments by the due time, it will boost your score while delayed or missed payments could lower it.

Credit Exposure

Credit exposure or the credit utilisation ratio also constitutes a part of your credit score. Credit utilisation denotes your credit usage in proportion to the available credit limit, and a ratio of over 30% can project you as a high-risk borrower and may cause a dip in your credit rating.

Credit Type and Duration

Another part of the CIBIL score comprises the duration of your credit history and the type of credit portfolio you hold. A longer credit history with a good repayment record is always preferable since it implies sufficient experience in managing credit.

Other Factors

Hard inquiries and other similar aspects also cover some parts of your credit score. When you apply for a loan, lenders access your credit report from the credit bureau, commonly referred to as a hard inquiry. Several of these can damage your score.

Also Read: Know What CIBIL Score Is Considered Good for a Home Loan 

Benefits of a Good Credit Score 

Without a credit score, lenders cannot assess creditworthiness. It is imperative to build a credit history and maintain a good CIBIL score, which can increase loan eligibility for availing loans at preferential rates.  

If you have a good CIBIL score, you can enjoy several benefits including: 

• ​One may secure bigger loan principal amounts at attractive interest rates and conditions
• Borrowers can choose a longer loan tenor to make repayments easier 
• You can get quicker loan approvals and better leverage when negotiating loan terms with lenders. 
• A higher score can accord discounts for loan-related charges and fees.  
• One can easily qualify for pre-approved loans. 

Every time you apply for a loan, such as a Home Loan or property loan, lenders will examine your credit history and CIBIL score. A low score can get in the way of securing the best loan deals, while good scores will open the doors to the most competitive offerings. Hence, it is important to always maintain a good CIBIL score. But if it is below expectations, one should consider remedial measures to improve the CIBIL score through systematic financial practices.     

Also Read: What Is Credit Mix and How Can It Improve Your Credit Score?