Your credit score is a measure of your financial health. A good score of 750 and above out of 900 can open doors of lenders for you, when you are in need of credit. As a financially conscientious individual you are careful about your credit behaviour. However one fine day, upon checking your credit report prior to applying for a loan, you find that your credit score has registered a sudden fall. Here are the possible reasons why.
The biggest influence on your credit score is your repayment record. If you have missed a couple of repayments on a loan, it will immediately reflect on your credit records, thus resulting in a fall in your CIBIL score. Further, if you end up on the loan defaulter list, it may be difficult for you to get any other line of credit in the future. Thus, if you are repaying a loan it is prudent to maintain an emergency fund that can take care of your repayments in case of a temporary halt in your cash flows.
If you have recently closed a old credit card account, it is likely that your CIBIL score will register a considerable fall. This is especially true if you have maintained a solid payment record on the card. This is because the age of credit, is yet another factor that influences your CIBIL score. Thus if you wish to limit your credit usage to one or a maximum or two cards, do not make the mistake of closing your previous card, especially the previous ones. You can repay the outstanding balance and keep it open to score points on the longevity and history.
Have you applied for a new line of credit, such a home loan, car loan, personal loan or a credit card? If you have applied to too many financial institutions for the same loan, it is likely that your credit score has taken a hit on account of too many hard inquiries. When you apply for a new credit line, the lender requests the permission to access your CIBIL report. A lender’s request is registered as a hard inquiry and shows up on your credit record. Further, each time you make a new application for credit, your CIBIL score takes a hit. Thus, too many hard inquiries in quick succession may result in a drop in CIBIL score.
A large amount of data exchanges hands between banks and credit bureaus each day. As a result, it is not unusual for some errors occasionally. For instance, a loan account that you have recently repaid may still be shown as open in your CIBIL records, and since you don't make payments on a closed account, it may erroneously record you as a defaulter. It is thus recommended that you keep a periodic check on your CIBIL report. You can make the best use of access to a free CIBIL report once annually to check your CIBIL records.
Thus, as is evident, Maintaining basic financial discipline and keeping a careful vigil over your credit records by checking your free CIBIL report annually, will ensure that your credit score does not register a sudden fall.