Why is your credit score not improving?
If your credit score isn't showing improvement, it could be due to one or more of these factors, Pay close attention!
New Delhi: Despite paying your credit card loans on time, why is your credit score not improving? Are you also facing a stagnant credit score? Do you happen to know what is it called? it is known as credit score stagnation. You might also be wondering why this is happening to you. There are certain factors that contribute to this situation. Let’s delve into them to gain a better understanding.
1. High credit utilization ratio
Credit utilization ratio (CUR) refers to the percentage of your credit card limit that you use in a given month. For instance, if your credit limit is ₹100,000 and you spend ₹60,000, your CUR would be 60%. It’s advised by experts to maintain a credit utilization ratio below 30%. A higher ratio can potentially reduce your credit score.
2. Limiting credit mix
Credit mix involves utilizing various types of credit accounts. The diversity of these accounts is crucial in influencing your credit score. Owning different types of credit accounts, such as home loans, personal loans, and credit cards, indicates effective debt management. A lack of credit diversity can have a negative impact on your credit score.
3. Multiple credit applications
If you apply for several credit cards or loans within a short period, it can also affect your credit score. With each application, the credit card company or bank checks your finances, and this can lower your score by a few points.
4. Errors in credit report
Regularly reviewing your credit report is crucial as it can contain inaccurate entries. Despite making timely loan payments, there might be delays in updating this information. In such instances, it’s important to promptly notify the appropriate credit bureau and your bank to correct these errors.
5. Co-signing for loan
When you cosign a loan with someone else, you assume responsibility for repaying the loan if the primary borrower fails to do so. This can impact your debt-to-income ratio, which in turn influences your credit score. To understand your debt-to-income ratio, consider this: If your monthly income is ₹100,000 and your total debt amounts to ₹30,000, your debt-to-income ratio would be 30%.
So, if your credit score isn’t improving, one or more of these reasons could be the cause. Pay attention to these factors, and it’s possible that your credit score will start to improve.