What to do if your Credit Score reduces?

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What to do if your credit score reduces? A low credit score can cause rejection of loan applications and can increase your interest costs. But there is no reason to panic or stress. It can be fixed, without any cost. You will have to follow a disciplined approach of continuous improvements and monitoring.

Here are 5 proven ways of preventing your score from reducing further and improving it over time –

1. Don’t take any more loans

Your net worth is the assets you have (cash, investments, property etc) MINUS your liabilities (personal loan, credit card bill etc). Reducing credit score is typically accompanied by a reduction in net worth. Don’t reduce it further by taking more loans. Keep a target credit score – apply for an additional loan only if you hit that target (say 720). Applying for a loan also reduces credit score because banks / financial institution will make a query for your credit report with credit bureau (e.g. CIBIL) which reduces your score. Loans also have interest and processing fee charges which can sometimes be quite high.

2. Reduce credit card expenses

Credit card utilisation (i.e. % of your credit card limit that you have used up) is an important part of your credit score. As your utilisation % increases, your credit score reduces. This is because financial institutions see you as credit hungry and start avoiding giving more loans or credit cards to you. Move your credit card expenses to debit card till your score improves. This will reduce your utilisation % and will increase your credit score.

3. Repay overdue EMIs

Delays on loan EMI is the biggest reason for credit score to reduce. For every EMI or credit card payment that you miss, the bank / financial institution reports this to 4 credit bureaus (CIBIL,    Experian, Equifax & CRIF) which shows in red or orange colour on your credit report. Repay your late EMIs or credit card bills at the earliest. This would mean cutting some other avoidable costs and requires discipline. Remember, your credit history cannot be changed – it will be with you for your entire life. Don’t paint it with red colours. If you are late on Credy EMI, pay here – https://www.credy.in/pay. Part payment is allowed.

4. Improve budgeting

Lot of times the credit score reduces because of financial stress. It could be because of medical reason, loss of job, expensive life events like marriage or unexpected emergencies. You should find ways to reduce costs (by avoiding unnecessary expenses) and increasing income (for e.g. via husband/wife, working additional shift etc). This sounds easy but is hard to implement. It will not show results overnight. You will need to have the discipline for some time (at least 6 months). Once you meet your target credit score, you can relax for some time and resume some expenditures that you stopped. But remember to continuously monitor your credit report.

5. Monitoring Continuously

There is a famous saying – if you can’t measure something, you can’t improve it. Similarly, if you can’t monitor something, you can’t tell if your efforts of improvement are working. You should check your credit report at least once a quarter. You should check the following:

  • If all information is correct. Sometimes financial institutions report wrong data. If that is the case, you should immediately point it out to them and ask them to correct within 30 days.
  • If your score has reduced, the reason for the reduction in the score

Credy is soon launching Credy Watch – a way to monitor your credit report, get tips on improvements, flag any potential errors on your report as well as help you track changes over time. Look out for updates!

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