Return to site

Has Your Credit Score Dropped After Paying the Debt?

· Finance,cibil score

A Catch-22 situation is one where any step you follow will have an impact, but it will not be the one that you want. The same holds true for your Credit Score - if you do not pay your loan, you are considered a defaulter and your credit scoring drops. On the other hand, the moment you pay-off the loan, in full and without missing an EMI, your credit rating starts dropping. The 3-digit number, given by CIBIL, showcases your financial health and when it starts dropping below 650, for borrowers it is time to worry.

So, why does the credit rating drop when there is no missing EMI or a loan.

The Drop In Your Credit Utilization Ratio

Taking credit and repaying without missing a deadline are the two most important parameters influencing your creditworthiness. As long as you were paying the loan, the credit utilization ratio would have been maintained at 40% or less. Most lenders will not approve your loan application for an immediate personal loan if the ratio is above 40%.

When you pay off your debt, it means you are no longer utilizing credit. It leads to a drop in ratio, which directly impacts your creditworthiness. When your credit rating drops, it makes you a less-reliable borrower.

The Solution to the Situation
 

Make sure the credit bureaus acknowledge your account as ‘Closed’ once the banks or NBFCs officially close your loan account. Once this is done, your credit score will become healthy once more.

You need a high credit score if you plan to apply for a personal loan or any other loan type in the future. Click here to read the steps you can follow to build-up your creditworthiness.

All Posts
×

Almost done…

We just sent you an email. Please click the link in the email to confirm your subscription!

OKSubscriptions powered by Strikingly