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Reasons When Credit Score Drops When Paying Off Debts

· finance,cibil score

Paying off debt is the best way to boost your CIBIL score. Timely paying the old debts shows that you are a responsible person and have stable financial conditions. Although this boosts the score, there are occasions when people avail loans to pay debts and this leads to a decrease in score. Along with this, there are various other reasons that also leads to a drop in the score just after the debt is paid.

Here are a few reasons that specify why CIBIL rating drops just after you pay the debts.

The absence of credit score: When you repay the debts, there is a situation of no credit account. This mostly leads to a CIBIL rating drop. In order to boost your credit score, it is necessary to maintain a credit account.

Never apply for other credit instantly: In order to boost your CIBIL score, consider never applying for the new credit instantly. It is best to maintain at least 6 months in between to ask for new debts.

Reduction in credit utilization ratio: When the credit account is closed, this decrease the credit utilization ration. This is a short time decrease and increases after a few days.

In addition, ensure that you do not repay the old loans. the score also depends on the mix of credit accounts and People often look for a Debt consolidation loan, this is the best way to pay off old debts with higher interest rate and also do not have a negative impact in your credit history.

 

Reference Post- Paying Off Debt Can Affect your Credit Score: Know How

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