My Credit Score has dipped down over time, without any major financial activity? Why?

Has it ever happened that your credit score has dipped down over time, without any major financial activity? As surprising as it may sound, it is a very normal thing for your score to see ups and downs. Your CRIF Credit Score is a dynamic number that falls and rises depending on your credit behaviour.

For example, when you apply for a loan, your score dips because of a hard inquiry. However, when you get the loan and start repaying it on time, a hike in your credit score can be witnessed.

The calculation of your credit score is complex and also varies from one credit bureau to another. It is preferable to stick to the bureau that your bank or credit lender has a tie up with. Yes, it may be very difficult to pinpoint the exact reason for the drop in your credit score. But you can always try to estimate it! Because your credit report is basically a collection of all your credit information so any rise or drop can be tracked down to one of the factors responsible for determining it.

Here are a few reasons why your score could have experienced a dip!

Your Credit Utilization Ratio increased

Every individual has an overall credit limit which includes your loan amount eligibility and credit card limits. The credit utilisation ratio determines how credit hungry you are and whether or not eligible for credit. If your credit utilization goes over 40%, you enter the credit hungry zone that can impact your credit score negatively.

So any month that you might have made large purchases or consumed most of your credit card limit would result in a lower credit score. Often, this is the case during festive seasons when people purchase furniture, home appliances or vehicles on credit, contributing a large part to the existing credit limit. Even if you repay the dues on time, this hike could get reported to the credit bureau before time and impact your credit score.

You may have closed a credit account

Closing a credit account like a loan or credit card can affect your score in different ways and it totally depends on the circumstances under which you closed them. Let’s say you have two credit cards and you end up using only one of them, say that the one you use frequently has an outstanding credit of Rs. 50,000 out of the Rs. 1 lakh credit limit. Even though you have used half of your available credit limit on this card, in totality, your credit utilization ratio will be lower when calculated with both credit cards.

Now, if you close the one you aren’t using, your credit utilisation ratio will see a hike which could drop your credit score by a few points. Apart from this, your credit score can see a drop even when you close a loan account before time. Some loans charge penalties while closing an account in advance and could seem counter intuitive. Due to this, your credit score might see a drop despite paying the amount.

A hard inquiry against your loan applications

It is an established fact that everytime you apply for a loan or even make an inquiry in the bank about your eligibility, the bank runs a hard inquiry by pulling your credit score. This results in a small yet sudden drop as well.

This also includes credit card inquiries, car loans, etc. These count for hard inquiries that impact your credit score but the impact is so small that it can often get missed while going through the report.

Always remember this: checking your own credit score does no harm, since it counts as a soft inquiry. So you can keep an eye on your personal credit score report through the year just to stay updated on the activities of your credit profile.