Why is My CIBIL Score Decreasing Despite Timely Payments and No Loans?
Your CIBIL score might be decreasing despite regular credit card payments and lacking any loans. This article explores several potential factors that could be affecting your CIBIL score and provides actionable recommendations to help you stabilize or improve it.
Insight into CIBIL Score Components
Your CIBIL score is determined by various factors, including your credit utilization ratio, credit mix, credit history, recent credit inquiries, inactivity of credit accounts, and any errors in your credit report. Let's delve into each of these components:
Credit Utilization Ratio
Even if you make timely payments on your credit cards, a high credit utilization ratio could negatively impact your CIBIL score. Your credit utilization ratio is the percentage of your credit limit that you're using. Ideally, you should keep your credit utilization below 30% of your total credit limit. If your balance is high, consider making payments to reduce your utilization rate.
Credit Mix
CIBIL considers the variety of your credit accounts. If you only have credit cards and no other types of loans, like personal or auto loans, your score might be influenced. Diversifying your credit mix can positively impact your score. If feasible, consider opening a small personal loan to add more variety to your credit profile.
Length of Credit History
A newer credit account might have a lower average age, which can negatively influence your score. A longer credit history typically contributes positively. Keeping older credit accounts open and occasionally using them can help maintain a longer credit history.
Recent Credit Inquiries
Multiple credit inquiries within a short period can lower your score. Each hard inquiry can have a small negative impact. Be mindful of the number of credit applications you submit in a short timeframe and avoid submitting too many in a small period.
Inactive Accounts
Credit issuers may close inactive credit cards due to inactivity, reducing your overall credit limit and impacting your score. Maintain at least occasional use of your credit cards to keep them active and improve older credit ratings.
Errors in Credit Report
Inaccuracies or errors in your credit report can also affect your score. Regularly check your CIBIL report for any discrepancies. If you find any errors, dispute them immediately.
Account Age
The average age of your credit accounts also plays a role. Closing older credit accounts can decrease the average age, potentially lowering your score. Keep older, responsible accounts open to maintain a better average account age.
Recommendations and Action Plan
Here are some actionable recommendations to stabilize or improve your CIBIL score:
Monitor Your Credit Utilization
Keep your credit utilization low by regularly paying off balances. Consider increasing your credit limit if feasible to further reduce your utilization rate.
Check Your Credit Report
Obtain a free copy of your CIBIL report and review it for any inaccuracies. Dispute any discrepancies you find with your credit agency.
Consider Diversifying Credit
Take a small loan like a personal loan to diversify your credit mix. This can positively influence your CIBIL score.
Limit New Applications
Avoid applying for multiple credit cards or loans in a short time to minimize hard inquiries. Instead, focus on maintaining and renewing your current credit accounts.
Keep Old Accounts Open
Keep older credit accounts open and use them occasionally to maintain a longer credit history.
By addressing these factors, you can work towards stabilizing or improving your CIBIL score over time. Regularly monitoring your credit report and making informed decisions regarding your credit usage can have a significant impact on your financial health.