Why Is My CIBIL Score Dropping? 8 Common Reasons & Fixes

29-year-old Madhumita had been managing her finances on her own for as long as she could recall. Paying EMI on time, auto-debiting her investment, and checking her CIBIL score monthly were things she rarely missed. Last week, she felt a little unsettled to see a 20-point drop in her CIBIL score. There seemed to be no obvious reason for this drop, and she wanted to know exactly why this happened.

Read on as we take a look at various reasons for a dropping CIBIL score and how best to fix them.

Why is My CIBIL Score Dropping? 8 Common Reasons & Fixes

Here are eight common reasons your CIBIL Score may be going down and what you can do about them.

1. You missed an EMI or credit card payment.

Payment history is one of the most important factors influencing your credit score. Even a delayed EMI or credit card payment can negatively affect your credit profile, particularly if the delay is reported as overdue.

How to fix it?

Clear all your dues as early as you can. The best option is to set up auto-debit so that all future payments can go on time.

2. Your credit card utilisation has increased.

This is where Madhumita fell short. Over the past few months, she had been getting her home renovated, which led to more swipes. While she rarely crossed the credit limit, her utilisation had increased. With a credit limit of ₹2 lakh, she had been using up to ₹1.5 lakh to as much as ₹1.75 lakh a month, raising her credit card utilisation to almost 85%.

How to fix it?

Most lenders consider a credit utilisation of over 30% to be a little alarming. Bringing your credit utilisation down can improve your credit score over time.

3. You have applied for several loans or credit cards.

Every formal credit application can result in a hard enquiry on your credit report. Multiple applications within a short period may make you appear more dependent on credit.

How to fix it?

Avoid applying with several lenders simultaneously. Compare the eligibility criteria and then apply for a loan/ credit card where your chances of approval are high.

4. You closed an old credit card or loan account.

When you close an old account, it changes the age and overall structure of your credit profile. This matters particularly when the account had a long history of responsible repayments.

How to fix it?

Do not close an old credit card simply because you no longer use it, especially if it has no significant maintenance cost.

5. You settled a loan rather than fully repaying it.

When you negotiate with your lender and they accept a reduced amount as full and final settlement, the account will be reported as “settled”, and not “closed”. This can negatively affect your creditworthiness.

How to fix it?

As far as possible, aim for full repayment rather than settlement. If you have settled a loan recently, speak to your lender about paying the remaining amount and getting the account status updated.

6. You have taken on too much unsecured debt.

When you use only unsecured credit through credit cards or personal loans, and do not rely on secured loans, that include home loan or car loan, it reflects that you have a narrower credit profile.

How to fix it?

Having a mixed bag of different types of credit can help in building a better profile. When you can responsibly handle all kinds of loans, lenders see you in good standing.

7. There has been an error in your report.

Though rare, it is also possible that there has been an error from CIBIL. A payment could be incorrectly marked as overdue, a closed account may still appear active, or an account that does not belong to you could be reflected in your report.

How to fix it?

Check your complete report, and if you spot incorrect information, raise a dispute with CIBIL and the concerned lender. RBI recommends regularly reviewing the report for inaccuracies.

8. Your co-borrower or guarantor account has a problem.

As a co-borrower, if the primary borrower misses payments, the repayment history associated with that account will affect you too.

How to fix it?

Do not treat a guaranteed or jointly held loan as someone else’s responsibility. Keep track of its repayment status and review your credit report periodically.

Over to You

Your CIBIL Score is easier to manage when you understand what is driving it. The JioFinance portal can help you make more informed decisions by bringing together practical financial guidance and credit-related solutions, so you can assess your borrowing needs before taking on new credit. Make credit monitoring and responsible borrowing part of your regular financial routine.