Maintaining a good credit score is a challenge as you have to be extremely careful in how you handle your credit. A good score is influential in granting you future loans, fixing of reasonable interest rates and the ease with which you can get an approval on your loan application. Thus, you should be careful about having and maintaining a good CIBIL score.
However, due to some reasons, your credit score might drop suddenly. This drop should be a red flag and its cause should be investigated at the earliest. If you have also faced a sudden drop in your CIBIL score, here are the steps which you should take to rectify the situation –
Check your CIBIL report
The first step which you should take is to check out your credit report to find out the possible reason for the drop in score. There might be errors in your personal details like your PAN number, Aadhar number, bank account details, etc. which might have caused a drop in the score. So, check whether all your details are correct and what is the reason for the reduction in your score.
1. Check for loan defaults
The first thing which reduces your CIBIL score drastically is a default in repayment of your dues. So, check which loan installments or credit card bill is outstanding and pay off the due debt as quickly as possible.
2. Check your credit mix
Credit mix is the ratio of secured and unsecured loans which you have in your name. If you have recently taken an unsecured loan or a credit card, your credit mix would have a higher percentage of unsecured loans compared to secured ones. Unsecured loans have a bad impact on the credit score and a new unsecured loan might be a reason for the reduction of the score.
3. See if there had been multiple inquiries into your CIBIL score
If you have recently availed a loan, you might have applied for the loan with more than one lender. With each loan application, there would have been a hard inquiry into your CIBIL score. Multiple inquiries have an adverse effect on the score and reduce it. So, try and avoid applying with multiple lenders. Choose a lender first and then make a loan application.
4. Closing of old credit accounts
If you have closed a credit card recently it would explain the drop in your CIBIL score. When you close an old credit card, two factors get affected. One, your credit limit reduces. As the limit reduces your credit utilization ratio increases. An increase in the ratio adversely affects your CIBIL score. Two, with an old account closure, your credit history also suffers negatively. So, if you have closed an old credit card, your score dipped.
5. Becoming a co-applicant or guarantor in a loan
If you have become a co-applicant for a loan taken by another or have acted as a third-party guarantor for any individual’s loan, your credit score might have reduced due to a default on the part of the borrower.
So, if your credit score has reduced suddenly, look for the above-mentioned reasons. Try and take corrective steps to rebuild your CIBIL score.