Reasons your CIBIL score is dropping

• Credit Utilization Ratio : This is the ratio between available credit and the credit you are utilising. One can derive a credit utilization percentage by using his/her total credit limit to divide the total credit account balance and multiplying by 100. While factors change as per the scoring method in use, credit utilization is a mostly important variable. This is owing to the fact that it gives the creditors an idea of your credit utility and pattern. A utilisation of less than 30% is ideal. Anything higher might suggest irresponsible credit behaviour and could contribute to lower credit scores. If someone has INR 20,000 available credit and they use up balances very close to the limit, this alone will initiate a drop in the score. The fact that the EMI’s are being paid on time, is irrelevant here. In case you are utilizing higher than 30%, you still don’t have to worry. There are ways in which you can do damage control. For instance, you may bring down your spending, completely pay dues on a credit card and ask the credit card agent to raise the credit limit on your card.

• Missed Payment: Remember that few things will always hurt your score like a late EMI payment which forms a part of credit you are utilizing. This is such a big deal owing to the fact that the credit scores depict the likelihood of your repayment capabilities on any debts you owe. Not paying on time or not paying at all is a red flag that shows your inability to payback. Not just this, while you may pay off your balances on time, a single late payment will make your credit card scores slip a little out of hand. This is why agents often recommend automated payment systems, or e-reminders for the payment due dates.
• Negative Remark In case your credit scores have seen a major drop, a negative mark is the main reason. Such a remark could be
  • Bankruptcy
  • Foreclosure
  • Tax lien
  • Civil judgment

When you spot any of these on your credit report, we advise you take care of it as soon as possible. Mostly because this is a representation of irresponsibility. Which can eventually reflect badly on your finance management skills.

• Shut Previous Credit Line At first it seems like a good idea to close an old credit card. Yet, doing this will hurt your credit scores. Understand that the age of your credit history is a frequently used variable for the calculation of your credit scores. When you shut an older credit card, you largely lower the average age of the credit accounts. This does not mean that you can never shut an old credit account. It is just that you need to be careful on how the shutting down takes place.

• Paid off student or car loan While a good mix of various types of credits and a number of open accounts go a long way in showing lenders your experience at debt paying responsibility. In case you’ve paid the only loan you have, your credit mix will have less diversity in the lender’s eyes. In the same way, when your overall number of accounts goes up or comes down, it could be an indicator of financial dependence on credit alone. So before opening or shutting any accounts, you should check your credit reports, that show the distribution of various open and shut accounts.