Lesser Known Reasons Why Your Credit Score Is Dropping

Confused about why your credit score is dropping even though you are not making mistakes? There are certain things that you might be doing but not aware of which are affecting your credit score drastically. We have listed down a few things that one or the other person doesn’t know that might be the reason behind all of your worries. Taking a credit card for sure is a big step but the most important factor is managing it wisely which helps you in maximizing the benefits of a credit card. You can apply for a credit card online as well as offline depending on your convenience. But hereunder are a few things that you must keep in mind while using a credit card that can affect your credit score drastically.

1. Closing an unused credit card: This step can have a negative impact on your credit history. You should not close the credit card account just because you are not using it because it will lower down your credit history. The credit score is dependent on how long you have been taking credit. If you close the credit account it will erase your credit history thereby decreasing the credit score. Do not close the unused credit card and use it once in a while. Once an account is closed, it cannot be reopened. So if you are ready to lose your credit history and rebuild your credit score then only get an account closed.

2. Errors and Omissions in the credit report: If you are the one who does not check their Credit report once in a while then my friend you are making the biggest mistake. The chances of error and omissions are always high, there can be chances that some transactions are omitted from your credit report or figures of some transactions are incorrect. You need to keep an eye on your credit report because these mistakes can lower down your credit score instantly. 

3. The first-time credit card user: The risk of credit score dropping is high when you are a first-time credit card user as you can face a problem in managing your credit card. You can go crazy while using a credit card and can overspend. Overspending impacts your credit score negatively. You need to be very careful while using a credit card. Learn first how to use credit cards wisely and then apply for a credit card. 

4. Frequently applying for a new credit card: Another reason that impacts your credit score is frequent multiple applications for credit cards. This can initiate hard inquiries against you because you are showing a credit hunger. Credit Card issuers will hesitate in issuing a credit card as well as this will drop your credit score. You should never apply for new credit cards in a short span of time, rather you should wait to apply so that it not only helps in improving the credit score but decreases the chances of hard inquiries initiation against you.

5. The high Credit utilization ratio: There is the thumb rule for the Credit utilization ratio that you should keep the Credit utilization ratio between 30%-40% and not more than this. If you are using the 100% credit limit then the chances of a credit score dropping increases. And the chances of your credit score impacting negatively increase when using a credit card beyond the pre-approved limit. To avoid such situations you can set the spending threshold limit. On reaching the threshold limit you will be notified so that you can stop using credit thereafter or use it only for a necessary purchase.

6. Late credit card bill and EMI payments: In case you have EMIs and credit card bills due and you do not repay them on time then it will affect your credit score badly. Frequent defaulting in payment increases the chances of you not getting any loans or new credit cards in the future. So, it is advisable to pay them on or before the due dates. It’s human nature to forget the due dates to avoid such things you can register for the auto-debit services. Every month the credit card bill will be deducted from your account automatically and you really do not have to worry about missing the due dates.

Bottom Line:

To conclude, a CIBIL score is very important for strong financial health. Credit cards are great tools to build a credit score but this is only possible when you know how to use a credit card wisely. Not using a credit card responsibly and sensibly can land you up in a debt trap. Credit cards are like a coin having advantages and disadvantages. The catch with credit cards is paying the credit cards’ bills timely and keeping the credit utilization ratio low. 

Share your tips in the comment section on how one can avoid the drop in the credit score and what has worked best for you.