Has Your Credit Score Dropped Suddenly? Read on to Know More
The top Credit Cards issuers look at the following three critical criteria while processing Credit Card applications:
- Your income and its continuity
- Your repayment capacity and the presence of other loans in your portfolio
- Your credit score
There could be a situation when you are confident that you have an excellent credit score along with a good income but, you find that the bank has declined your Credit Card application stating that your credit score does not match up to the requirements of the bank. You check out your credit score online only to find that it has dropped down drastically to around 660 from 770 about six months back. What could be the reasons for the same? Let us investigate and find out the possible causes for the sudden drop in your credit ratings.
Call for Your Credit Report
Credit bureaus supply one copy of the credit report free every year. You can also ask for additional copies by paying a prescribed fee. The first thing you do is to call for an exhaustive credit report. You get your report online. The next step is to check for possible errors.
Check Your Credit Report – The Personal Identification Part
a. Verify whether your personal identification details are accurate. Pay attention to the PAN details and other data like Aadhaar Card, driving licence, and so on.
b. Check out your address and confirm the correctness.
What has your identity to do with your credit score? You can have this question in your mind. The credit bureaus do not know you personally. They go by the information you provide. If you submit wrong information, the data you get will also be erroneous. If there is an error in your identity details, you must take steps to rectify it. Submit your correct information to the credit bureaus and rectify the mistakes as quickly as possible.
Check Your Credit Report – Your Credit Information Part
The credit report contains the details of all your loan accounts irrespective of whether you have closed the account or not. Every account will have its status written beside it. Each account will contain the following information:
a. Name of the bank where you maintain the loan account
b. Amount of loan sanctioned
c. Date of sanction
d. Present outstanding position
e. Repayment status of the past one year with details about the number of days of default of each payment.
f. Status of the account (Open, Closed, Settled, Written-Off)
Go Through Each Account Carefully
Call for your bank statements and check the genuineness of each account mentioned in the credit report. There could be an account that does not pertain to you. It can happen when there is a case of mistaken identity. Someone else might have erroneously submitted your identity details. Hence, your credit report might have an overlapping of accounts not belonging to you. Dispute the matter with the credit bureau who will, in turn, take up the case with the concerned bank to rectify the issue.
What Could Have Reduced Your Score Drastically?
In the ordinary course, your credit score may have decreased because of the following reasons:
1. Default or delay in payment:
Check out whether you have defaulted in any of your loan repayments. Pay more attention to Credit Card payments. You might have missed a payment or two. Usually, banks do not report the late payment for 29 days. If the default remains outstanding for the 30th day, it reflects on the credit report. It can reduce your credit score considerably.
2. Maintaining a higher credit utilisation ratio:
Verify the proportion of your credit card outstanding amount with the credit limit. It could happen that the credit utilisation ratio might have been high on the date of reporting. You might have made the payment subsequently. Hence, you must have an idea as to when the banks report the data to the bureaus and ensure that you make the payment in advance.
3. Closure of old accounts leading to a decrease in the length of your credit history:
You could have closed an old Credit Card account. It could reduce the period of your credit history thereby affecting your credit score.
4. Substantial outstanding loan balances:
You might have availed a Housing Loan recently resulting in an abnormal increase in the loan outstanding.
5. An adverse ratio of secured and unsecured loans:
Credit bureaus concentrate on how you treat the unsecured loan accounts. Maintaining a healthy mix of secured and unsecured loans is necessary. The Housing Loan you have availed recently could have thrown the ratio off balance thereby affecting your credit score.
6. A high number of credit enquiries (hard checks done by bankers):
You may have applied with various banks for your Housing Loan. Each bank would have checked your credit report thereby increasing the number of credit enquiries. The higher the frequency of queries, the faster your score decreases.
7. Co-signing of third party loan:
You might have co-signed a third-party loan or stood as guarantor for a third party. Any default on their part can affect your credit score as the accounts will reflect in your credit report as well.
These could be the reasons for the decline in your credit score. Therefore, you should be careful when you Apply for New Credit Card Online or offline. Check your credit score and confirm it adheres to the bank’s norms. Any rejection will dent your credit scores further.
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