ATM :: Is your CIBIL Score falling inspite of making the right moves?

Monday, April 15, 2013 by Rajiv Raj


There are several reasons why your CIBIL credit score could drop down. Not all drops in credit score is due to bad credit behaviour, infact there are some excellent credit related choices which could cause the drop in score. We have constructed some real life scenarios from actual cases to give an insight into why your CIBIL credit score could be falling. Read to see if you have had a similar experience.

Scenario 1
Vijay Rajan has decided to shut down all the credit cards he did not use. He had a total of 6 cards and used only 2 of them actively so he now cancelled 4 of his cards.

Behind the curtains

Be careful when closing out cards and keep in mind the credit utilization ratio which is the amount of credit you’ve used, compared to the amount you have available. It’s a factor of about 30 % of your score. If you don’t have a good credit utilization ratio, your credit score can drop significantly low. In Vijay’s case he had a total credit available of Rs 10 lacs with his credit cards which dropped to Rs.3.5 lacs when he cancelled 4 of his cards. His spending was around 2 lacs per month on credit cards. While the credit utilization was just 25% of his earlier limit, it was now 57% which affected his CIBIL credit score sharply.

Scenario 2
Nitin Fernandes had plans to buy a home soon. In preparation for it he made enquiries with some banks and even applied for some pre-approved loans

Behind the curtains

Multiple loan inquiries can raise a flag and lower your score especially if they are spread over a few months. A hard inquiry is when a bank or organization requests your credit score and history and they intend to make a lending decision such as a home loan. Each hard inquiry will serve to bring down your CIBIL credit score.

Scenario 3
Shyama Misra inherited some money and she decided to use it to pay back her home and car loan. She had the loans from different banks and also held related saving accounts in that bank which she closed once she pre-paid her home and car loan.

Behind the curtains

Can paying back your loans before time mean a drop in credit score? Yes, the sudden, large changes introduce some instability in your credit history that temporarily could have a negative effect on your credit scores, though in the long term loan repayment will have a positive effect on your CIBIL credit score.

On the contrary, keeping the loan open and at a low level shows that you can manage the payment each month, and that will help boost your score.


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