There are basically three major actions that are responsible for significant score drops and they are delayed repayments, over utilisation of credit limits and closing of old credit accounts. Therefore such a serious drop in credit score can have negative effects on your overall credit profile.
On the same issue, Nish Bhatt, Founder & CEO, Millwood Kane International says, “A 100 point drop in your credit score isn’t just a casual number because it can impact everything starting from loan approvals to insurance premiums. We see far too many people overlook the basics – timely payments and low credit utilisation. Staying informed and proactive is the best defense against preventable financial setbacks.”
Missing of payments tops the list
Prominent financial institutions and credit bureaus classify delay in EMIs or missed payments of credit cards as a big red. A single 30 day delay can result in a drop of 50 to 100 points. This is also dependent on the individual’s credit profile. The Reserve Bank of India has reiterated several times through its financial stability reports that, on time payment is central to maintaining access to future credit.
High credit utilisation and old account closures
If you overuse your credit card, especially above 30% of the sanctioned credit limit, then such negligence can significantly impact your credit score. This signifies over extension and extreme reliance on credit and may reduce the chances of favourable credit and loan terms from banks in the future.
Not only this, several customers unknowingly hurt their credit score by closing out on long standing credit cards, personal loans or other credit instruments. This action lowers the average credit history length, a factor used by credit bureaus to check your repayment reliability.
Credit score range and what it means for you
Your credit score reflects your financial history and influences your loan eligibility. Here’s a quick look at what different score ranges mean for borrowers:
Note: This table is for illustrative purposes only. Actual lender criteria may vary.
What are some key reasons for credit score drops?
- Late or missed EMI payments.
- Delay in credit card payments.
- Credit utilisation exceeding 30%.
- Closing old credit accounts.
- Multiple loan/credit card applications in a short span.
- Defaulting on secured or unsecured loans.
Therefore, clearly understanding credit is key. True financial wellbeing needs budgeting, emergency planning and sensible decision making. Prudent credit use today builds stronger borrowers for tomorrow.
Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
