Your credit score plays a crucial role in assessing your creditworthiness for various types of loans and credit applications. Whether you are applying for a home loan, personal loan, credit card, or any other form of credit, lenders rely on your credit score to determine your eligibility. Shriram Finance, a prominent non-banking finance company based in India, offers a range of credit solutions such as loans for commercial vehicles, two-wheelers, cars, homes, gold, personal finances, and small businesses. Click here to learn more about various credit score services offered by Shriram Finance.
Reasons Your Credit Score Isn't Improving
There are several common reasons why your credit score may not be increasing:
- Late payments: Paying bills on time is crucial for maintaining a good credit score. However, even if you make timely payments for most of your accounts, one or two late payments can significantly impact your overall score.
- Poorly managed credit card balances: Another factor that affects your credit score is the credit utilisation ratio – the ratio of your expenses on your card to the credit limit. Keeping this ratio at or below 30% is ideal for maintaining a good score.
- Applying for too many credit cards: Applying for multiple credit cards can lead to hard inquiries on your credit report, even if some of these applications get rejected. Lenders view repeated applications as a sign of being credit-hungry, which negatively impacts your score.
- Taking multiple loans: While loans can be beneficial for achieving financial goals, taking on too many loans increases your debt-to-income ratio and affects your creditworthiness.
- Focusing on shutting down unused accounts: Some believe that closing old credit accounts will improve their credit scores. However, credit scores are based on the information available on your credit report, including the length of your credit history.
- Past negative records: Negative events like bankruptcy or delinquent accounts have a long-lasting impact on your credit score. These records stay on your credit report for up to seven years and can significantly affect your ability to obtain new lines of credit at favourable terms.
Poorly Managed Credit Card Balances
Maintaining a healthy credit utilisation ratio is vital for improving your overall credit score. Your credit utilisation ratio is calculated by dividing the sum of all balances across all revolving accounts by the sum of their respective limits.
For example, let's say you have two credit cards with limits of ₹50,000 each. Card A has a balance of ₹15,000, while Card B has a balance of ₹10,000. Your total balance is ₹25,000, and your total credit limit is ₹1,00,000. To calculate your credit utilisation ratio, divide the balance by the credit limit:
25,000 / 100,000 = 0.25
In this case, your credit utilisation ratio is 25%.
A high credit utilisation ratio indicates a dependency on credit and may negatively impact your credit score. It is recommended to keep your credit utilisation ratio below 30% to maintain a good score. By reducing your balances or increasing your credit limits, you can lower your ratio and improve your credit score.
Delay in Making Payments
Payment history is one of the most crucial factors in determining your credit score. Consistently making timely payments demonstrates that you are responsible and reliable with credit. On the other hand, late payments can significantly harm your score.
Let's consider an example: Ramesh has a personal loan with monthly EMIs of ₹10,000. Due to some financial difficulties, he missed a payment for two consecutive months. As a result of these delinquent payments, his credit score drops by several points.
Shriram Finance understands the importance of timely payments in improving your credit score. If you are struggling to manage multiple loan EMIs or face difficulties in improving your score, Shriram Finance's credit improvement service can provide actionable suggestions tailored to your situation.
Applying for Too Many Credit Cards
Applying for multiple loans or credit cards within a short period can negatively impact your credit score. Each application results in a hard inquiry on your credit report, which indicates that you are actively seeking credit.
Lenders may interpret multiple inquiries as a sign of financial instability or desperation for credit, which can lower your score. Moreover, each hard inquiry stays on your credit report for up to two years and affects your score during that time.
To maintain a good credit score as per credit bureaus, it's essential to be selective when applying for new credit cards. Only apply for those that align with your financial needs and consider the potential impact on your credit score.
Shriram Finance guides responsible credit card applications and answers questions like "why my credit score is not increasing". We offer various credit solutions tailored to different customer requirements, ensuring you make informed decisions regarding additional lines of credit.
Taking Multiple Loans
While loans can be beneficial for achieving financial goals, taking on too many loans at once can negatively impact your credit score. Each loan increases your debt-to-income ratio, which measures how much debt you have compared to your income.
For example, if your monthly income is ₹50,000 and you have loan EMIs totalling ₹20,000 per month, your debt-to-income ratio would be 40%.
Having a high debt-to-income ratio indicates that you may struggle with repaying debts or managing new financial obligations. Lenders may view this as a risk factor when assessing your eligibility for additional loans or lines of credit.
Focusing on Shutting Down Unused Accounts
There is a common misconception that closing old credit accounts will boost your credit score. However, credit scores are based on the information available on your credit report, including the length of your credit history.
Closing an old account may lower your score or slow down its improvement because it reduces the average age of your credit accounts. A longer credit history shows that you have been responsible for credit for an extended period, which can enhance your eligibility for better offers.
Past Negative Records
Negative events such as bankruptcy or delinquent accounts can significantly impact your credit score. It takes time to recover from these records and turn them into positive ones.
Let's say Arjun faced financial difficulties a few years ago and had to declare bankruptcy. As a result, his credit report shows negative records that continue to affect his credit score even though he is now financially stable.
Resolving negative accounts promptly is crucial for improving your overall credit score. Whether it involves paying off delinquent accounts or seeking professional assistance for settlement options, taking steps to address these issues is essential.
Shriram Finance understands the challenges posed by past negative records and offers a Credit Improvement Service to assist individuals in rebuilding their credit. Their personalised guidance and support can help you navigate the process of improving your credit score effectively.
Conclusion
Improving your credit score requires consistent effort and careful financial management. Late payments, poorly managed credit card balances, excessive credit card applications, multiple loans, focusing on closing unused accounts, and past negative records are common reasons your score is not increasing as desired.
It's important to avoid mistakes that could harm your credit score and take proactive steps to address any issues promptly. Shriram Finance provides free credit check services to help individuals access their credit scores.
Remember that credit score improvement doesn't happen overnight. It takes persistent efforts over several months or even longer depending on your starting point. By implementing the right strategies and seeking expert advice when needed, you can gradually build a better credit score and enjoy the benefits of good credit.
Key Highlights
- Timely payments and managing credit card balances are crucial for improving credit scores.
- Avoid unnecessary loan applications and focus on responsible borrowing practices.
- Understand the impact of closing unused accounts and consider alternative strategies for debt management.
- Promptly resolve past negative records and seek professional assistance if needed.
Frequently Asked Questions
1. Why is my credit score not going up anymore?
Credit scores require consistent effort and time to improve. Factors such as late payments or excessive credit utilisation may be preventing credit score improvement. It's important to review your credit history and address any negative factors accordingly.
2. Why is my credit card not improving my credit score?
Credit cards are just one factor in determining credit scores. Responsible credit card usage, timely payments, and maintaining a low credit utilisation ratio are crucial for improvement. Other aspects of credit history may also impact the overall score.
3. Why hasn't my credit score gone up in months?
Credit score improvements take time and consistent positive financial behaviour. Various factors discussed in the article, such as late payments or closing unused accounts, may be hindering the improvement process. It's essential to continue practising good financial habits and monitor credit reports for inaccuracies.
4. Why is my credit score not going up after paying off debt?
Paying off debt is important but not the only factor in improving credit scores. Payment history and utilisation ratio also play a significant role. Maintaining positive financial habits over an extended period is necessary to see significant improvements.
