Approval of an application for loan depends on many factors, including the CIBIL score, or the credit score, as well as income and security provided. A good CIBIL score can help get a personal loan or any other unsecured loan without any collateral and at low interest rates. Conversely, a weak score makes it difficult for a prospective borrower to get a loan from a bank or a non-banking finance company.
CIBIL Score
A CIBIL score is assigned based on a person credit history and other established criteria. This covers elements such as any unpaid loans the person may have taken. Additionally, it takes into account factors such as how frequently a person uses credit cards and how successfully they have traditionally paid their monthly installments.
The range of the three-digit CIBIL score is 300 to 900. To be clear, the CIBIL score is not a fixed number. In fact, it keeps changing—either rising or falling—depending on a borrower’s credit activities.
A good CIBIL score is essentially an assurance for a lender that the borrower is a responsible person who has repaid earlier loans on time, in full, and with interest. On the flip side, a low CIBIL score leads to higher risk for lenders making them sceptical about advancing loans to such persons.
Why CIBIL Score May Fall Suddenly
If your CIBIL score has dropped suddenly there are chances that your loan application may be delayed or rejected. Hence, it is important for you to look at reasons for the drop in the CIBIL score. which may include the following:
• Missing An EMI:
If you missed paying an installment on loan or credit card dues, the data is immediately captured by companies that provide CIBIL scores. This automatically drags the CIBIL score down and it may take months of regular payments to bring the score back to the earlier level. In case you have missed payment of an EMI or credit card dues, it is a good idea to clear it with interest as soon as possible.
• Large Loan:
Taking a large loan or even too many inquiries for such loans lead to a drop in the CIBIL score. A large loan can make you overly leveraged and too many inquiries alert the companies that manage the CIBIL score. It is a good idea not to make too many hard inquiries for loans, unless you need it urgently.
• Big Purchase On Credit Card:
The credit card utilisation ratio is one of the many factors that determine the CIBIL score. When you make big purchases on a credit card the utilisation ratio rises, leading to a sudden drop in the CIBIL score. It is a good idea to keep the utilisation ratio – credit card purchases against the total limit allocated – at less than 30% to ensure a good CIBIL score. In case your credit card purchases are rising, you should first get the limit of the card raised.
• Credit Card Inquires:
Too many inquiries for credit cards also alert the companies that keep CIBIL scores. Hence, such inquiries can lead to a sudden drop in CIBIL scores. But that is usually temporary and the scores will rise gradually as you take a card or stop the inquiries.
• Closing A Credit Card:
All credit cards have limits and these limits play an important role in deciding your credit utilisation ratio. Hence, when you close a card your utilisation ratio can go up, leading to a sudden drop in the CIBIL score.
• Prepaying Loan:
The CIBIL score takes into account all the secured and unsecured loans you have. If you happen to close a loan, especially a secured one, you credit mix will change, leading to a drop in the CIBIL score. While this should not stop you from prepaying loans, you just have to be careful of its impact on the CIBIL score.
Conclusion
If your CIBIL score has dropped suddenly you should not worry too much, unless it is because you have missed paying an installment or your credit card purchases are too high. Instead, look into the reasons why your score has dropped. If there is any erroneous entry in your CIBIL report that may have led to the drop in credit score you can contact CIBIL or your lenders to correct the same. You can also look at ways on how to improve your CIBIL score.
Once you have checked these aspects you can go to IIFL Finance website to get a personal or business loan. IIFL Finance processes personal loan application of up to Rs 5 lakh in less than five minutes and all the paperwork can be done online. Even disbursal is made in just a few hours with minimal documentation. IIFL Finance also offers unsecured business loans of up to Rs 30 lakh via a 100% online process. There is also a facility of instant gold loans at IIFL Finance with zero hidden costs and an interest rate as low as 1% per month.
FAQs
Credit scores can drop due to a variety of reasons, including late or missed payments, changes to your credit utilization rate, a change in your credit mix, closing older accounts (which may shorten your length of credit history overall), or applying for new credit accounts.
Why did suddenly my CIBIL score decrease? ›
Irresponsible Payment Behaviour:
As per a CIBIL analysis (reported by the Financial Express), a 30-day delinquency can reduce your score by 100 points. If you have multiple credit cards as well as loans, it is advised to set up reminders and alerts, to avoid missing payments or delaying them.
Why did my credit score suddenly drop for no reason? ›
Using more of your credit card balance than usual — even if you pay on time — can reduce your score until a new, lower balance is reported the following month. Closed accounts and lower credit limits can also result in lower scores even if your payment behavior has not changed.
What are the reasons why a person's credit score may decrease? ›
Payment history has the biggest impact on your score, followed by the amounts owed on your debt accounts and the length of your credit history. There are other elements, too, that could affect your credit scores, such as inaccurate information on your credit report.
Why is my CIBIL score low without any reason? ›
Errors in your CIBIL report, such as an incorrect personal or account details, duplicate accounts, incorrect loan balance, error in outstanding balance, errors in reported active loans/credit, etc. may adversely affect your CIBIL score.
What is affecting my CIBIL score? ›
Payment history: When a lender looks at your credit report, they want to see if you pay all your debts on time. Your payment history greatly influences your CIBIL score. It reflects your perseverance to pay off debts and pay on time. It also shows delinquent accounts and bankruptcies, judgments and liens.
Why did my credit score drop 20 points? ›
Some of the most common reasons for a credit score dropping include: You paid off a loan. You applied for new credit. You missed a payment.
Why did my FICO score drop 100 points? ›
For your credit score to drop 100 points at once, you're most likely talking about being 90 days late or more on a loan or credit card payment you're on the hook for. Believe it or not, a single late payment could cause damage in that ballpark, especially if your credit score is higher to begin with.
Why did my credit score drop after dispute? ›
Disputing a credit card charge does not hurt your credit. However, if the information on your credit report changes because of the dispute, your score may change accordingly. Credit agencies can also note the dispute by placing the “XB” code on your account, which simply means the dispute is under investigation.
Why is my credit score so low when I have no debt? ›
Various weighted factors mean that even with no credit, your credit score could still be low because the length of your credit history or credit mix, for example, could also be low.
Five Main Causes of Bad Credit
- Late payments. A person's payment history accounts for 35% of their credit score. ...
- Collection accounts. When creditors are unable to secure payments from a borrower, they can use third-parties to enforce the collection process. ...
- Bankruptcy filing. ...
- Charge-offs. ...
- Defaulting on loans.
Not checking your credit score often enough, missing payments, taking on unnecessary credit and closing credit card accounts are just some of the common credit mistakes you can easily avoid.
How do I fix my credit score drop? ›
Here are some actions you can take to improve your credit score:
- Pay your bills on time. ...
- Keep a low credit utilization rate. ...
- Don't apply for too many new credit accounts. ...
- Sign up for Experian Boost®ø.
One of the most common reasons why has my credit score dropped is late or missed payments. An individual payment history accounts for around 35% of the overall CIBIL score; hence, any delays or defaults can significantly impact it.
Why has my credit score dropped for no reason? ›
Things like new credit applications and missed payments may impact your credit score. You may be able to improve your credit score in a number of ways, including making sure you're on the electoral register, managing accounts well and limiting new credit applications.
How can I increase my dropped CIBIL score? ›
- Avail Secured Credit Card. ...
- Refrain from Closing Old Credit Card Accounts. ...
- Monitor your Co-signed, Guaranteed or Joint Loan Accounts Regularly. ...
- Choosing a Longer Repayment Tenure. ...
- Trying to Increase your Credit Limit. ...
- Trying to Maintain a Healthy Credit Mix.
When you take a loan, repay it successfully, it will give your credit score a boost. Maintain a healthy credit mix: It is better to have a right combination of secured loans (such as Home Loan, Auto Loan) and unsecured loans (such as Personal Loan, Credit Cards) of a long and short tenor to build a good credit score.
Why is my CIBIL score going down when I pay on time? ›
Credit Utilization Ratio:
If your credit card balances are high compared to your credit limits, it can negatively impact your score. Even if you're paying on time, a high credit utilization ratio signals potential financial strain and can lead to a lower score.
Why is my credit score low when I have no debt? ›
If you have no record of handling credit previously, lenders have no evidence that you can borrow responsibly. This is referred to as having “thin credit” and can give you a lower score than you'd like. Thin credit can mean you have a low credit score, despite having no debt.
Does your CIBIL score reduce every time you check it? ›
Checking your CIBIL score regularly does not reduce your credit points. You must check your credit score before seeking new credit as it will help you grow your credit score over time. Ensure you have the optimum score for the credit approval and avoid having your application rejected by creditors.
