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 drop in your credit rating? This can be a matter of serious concern for you, as a low credit score can reduce your chances of getting a loan if you need a loan in the future. This is what you need to check.
Check your debt records
Immediately check your credit report to find out why your credit score has dropped. It can help you keep track of your financial records and activities. You can check your EMI repayment pattern, existing and past loan records, credit card list, etc. There may be one or more reasons for a decrease in your credit score. Once you have identified the reason, you can take corrective action to restore your credit score.
Delay or default in loan repayment
Your credit score will normally be affected when you have either delayed paying off your debt for a longer period or defaulted. If you delayed an IME for the first time, you can improve the score again by being disciplined and repaying the IME on time in the future. Frequently being late can significantly lower your credit score. Timely payments, however, are in your hands. The more punctual you are, the better your score.
Do you often exhaust your credit limit?
Exhausting the credit limit results in a high credit utilization ratio (CUR). If the CUR on your card often exceeds the 30% level, it may indicate that you are credit hungry and therefore your credit score may decrease. If your credit score has dropped due to the high CUR, you can recover it by regularly using your card while keeping the CUR below 30%.
Too many difficult requests for loans
Having too many loans can strain your financial capacity and lower your credit score. Even if your loans are small, they can negatively impact your credit score. Likewise, too many inquiries for a new loan can also negatively impact your credit score. If your credit score has dropped due to multiple loans, you can close some of your smaller loans to reduce your repayment obligation. Also, avoid multiple loan applications to avoid a negative impact on your credit score.
Credit card cancellation
Canceling your credit card or closing your existing loan could be the reasons for a temporary drop in your credit score. Closing a line of credit reduces your overall credit limit. It also shortens the age of credit lines available to you. Keeping a card for many years has a positive impact on your score. These factors can negatively impact your credit score for a short time. Sometimes lenders can report inaccurate information to the credit bureaus, which negatively impacts your credit score. You can avoid this by checking your credit report regularly.
A good credit rating is essential considering the requirement of any loan. By avoiding certain financial mistakes, you can ensure that your credit remains healthy.
(The author is CEO, Bankbazaar.com)