Reasons Why Your CIBIL Score May Have Dropped Suddenly

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.