It won’t be wrong to say that the world of credit scores is like a treasure hunt where we need to decode the map, the credit report, to find clues to the treasure, our credit score.
There have been several instances where individuals get stuck on their path to the treasure as they are unable to decode why their credit score has dropped even after prompt payments.
This blog will take you through the mystery of how the credit score can decrease without you even noticing.
First things first, what are credit scores and why is it a treasure? It is number that ranges from 300 to 900, a numeric evaluation of your financial trustworthiness. The importance of a credit score cannot be overstated in the world of personal finance and lending. It is a numerical representation of an individual’s creditworthiness, indicating their ability to manage and repay debt.
- A good credit score leads to lower interest rates on loans.
- Your credit score can affect your ability to rent or buy a home.
- It’s the key to unlocking better credit card offers and rewards.
- Good credit paves the way for wealth-building opportunities.
All the above points can be summarized to – Peace of mind: a strong credit score is your financial safety net.
Credit Score Range
Poor (300-579): Credit scores in this range are considered very low, indicating a high risk of default. Borrowers may find it challenging to qualify for credit or may face high interest rates.
Fair (580-669): Scores in this range are below the average and suggest some credit issues. Borrowers may still struggle to qualify for credit at favorable terms.
Good (670-739): A good credit score indicates responsible credit management. Borrowers in this range are more likely to qualify for credit at reasonable interest rates.
Very Good (740-799): Scores in this range are well above the average and reflect a strong history of responsible credit use. Borrowers can typically qualify for loans and credit cards at favorable terms.
Excellent (800-850): An excellent credit score is the highest tier, indicating a very low credit risk. Borrowers in this range are likely to qualify for the best interest rates and terms on loans and credit cards.
Just like any other treasure, your credit score needs to be protected against thieves like default payments, suit filed, settlements, and any other items on your report that can drop your score.
Let’s explore some of these items which can explain why your score drops in spite of timely payments.
You feel happy when you see a high credit limit on your credit cards. This can tempt you to use a high percentage of your limit. However, giving in to this temptation can lead to a drop in your credit score.
Your credit utilization ratio accounts for up to 30% of your credit score. Having a high credit utilization ratio, i.e the percentage of your credit limit that you are currently using, can drop your credit score.
The credit scorekeeper doesn’t like desperation. Each time you fill a loan application, an inquiry is initiated by the lender for your credit report. Having too many inquiries in a short span of time will reduce your credit score as this might be interpreted as a sign that you are desperately seeking credit and are facing rejections because of issues with your credit history.
It’s like telling your boss you’re always ‘just fashionably late’ to work. While making consistent payments is good, consistently making late payments can drop your credit score. Late payments may not leave you drowning in debt, but they’ll sure leave your CIBIL score drenched.
Old is gold, this is true for credit scores as well. If your credit history is short, your score can suffer.
A longer credit history provides more data points for evaluation and demonstrates stability and experience in managing credit. Pro tip, closing an old credit card with a good repayment history might not be a very good idea.
Your CIBIL score loves variety. Having a mix of secured and unsecured credit is a sign of good credit management. If you only have a single type of credit (say, credit cards) and lack diversity (like a mortgage or personal loan), your score might get picky. This factor is considered to have close to 10% weightage when your credit score is being calculated.
Your credit score can drop due to incorrect reporting of balances. It’s like having your life story penned by someone else – they get all the juicy bits wrong. Mistakes in credit report happen more frequently than you think. If balances are reported higher than they should be, it can negatively affect your score.
This is when vigilance and regular credit report checks become your superhero cape.
Here is what happened to Radha form Outer ring road, Bangalore working in Amazon.
Radha had been good with her finances and had been making timely payments on all her loans and credit cards. She took pride in her credit score which hovered above 800.
Which is why she was baffled when she saw that her credit score had dropped by 100 points.
That is when she approached Omozing.
Radha had been a borrower earlier with Omozing. She approached Omozing for it’s credit repair service.
Omozing Credit Repair
Omozing’s credit repair service is a holistic approach to credit improvement. It offers features aimed at helping you take control of your credit health and enhancing your financial well-being. Here’s how it works:
- Comprehensive Credit Report Analysis: Omozing starts by obtaining your credit reports. It then meticulously analyzes these reports to identify negative items and errors that may be dragging down your credit score.
- Identifying Problem Areas: The platform’s advanced algorithms and data analysis tools help pinpoint specific areas of concern in your credit report. This includes late payments, collections, charge-offs, and inaccurate information that could be affecting your credit negatively.
- Tailored Remedies: Omozing doesn’t take a one-size-fits-all approach. It tailors its credit repair strategies to your unique credit profile, focusing on the areas that require attention. This ensures that the solutions provided are relevant and effective.
- Guidance and Education: Omozing doesn’t stop at fixing your credit issues; it empowers you with the knowledge and tools you need to maintain a healthy credit profile. The platform offers educational resources and personalized advice to help you make informed financial decisions.
After conducting an analysis, Omozing enlightened Radha about the error in her report.
Radha understood that her credit card account showed a remark of “in collections”. She immediately contacted her bank and found out that in spite of receiving timely payments, due to an internal error, they had failed to update her account status. As a result, it was incorrectly reported to the Credit Bureau.
The company immediately acknowledged its mistake and assured Radha that the issue would be resolved promptly. She was provided with a letter confirming the error and their commitment to rectify it. Her credit score had been recalculated and restored to its former glory.
Check out CIBIL’s website to know how to raise an online dispute for the incorrect items on your report.
The world of CIBIL scores is like a funhouse mirror – it reflects your financial image, but it can distort reality without notice. Your score can drop even without defaulting, leaving you mystified. The best way to navigate this enigmatic world is by practicing good financial habits, monitoring your credit reports regularly, and addressing any inaccuracies promptly.
Remember, while humor can help lighten the mood, it’s crucial to take your credit score seriously. Maintaining a good credit score can open doors to better financial opportunities, whether it’s securing a loan, getting a credit card with excellent terms, or simply enjoying peace of mind in your financial life. So, embrace the quirks of the credit score game and play it wisely!
https://www.youtube.com/watch?v=fCo-V3X1T1w&t=1s check out this video by Omozing to know how to improve your credit score.