Credit score is a vital tool for assessing your creditworthiness while opting to apply for a home loan, personal loan, credit card or any other form of credit. Sometimes, you may feel you have made your payments on time but still you may be stuck with a  low credit score. It can be quite difficult for you to understand as there are a lot of factors that go into deciding your credit score.  

Let us look at the reasons why your credit score might not be improving. 

To understand the calculation of credit score better, it is essential for you to understand the factors that go into the calculation of credit score.  

The factors that determine your credit score are: 

  • Repayments on these credit accounts 

  • Credit utilization ratio 

  • Mix of secured and unsecured borrowings 

  • Number of hard Enquiries on your PAN  

  • Length of your credit history 

Reasons Why Your Credit Score Might Not Be Improving 

Late Payments 

You avail a loan or credit card on the premise that the EMI or outstanding bill will be paid by the decided date. By not doing so, you are breaking your part of the contract, thereby getting projected as irresponsible with credit.  

Payment performance is one of the major measuring factors in deciding your credit score. When lenders review your credit report, they are curious about how reliable you are in paying your bills. Hence, delinquent payments will have an adverse bearing on your credit report. For your auto loans, home loans, personal loans, or student loans, it is advisable if you can opt for automatic payments which will help you avoid late payment issues. 

Additional Reading: How setting up automatic payment for credit cards can help you? 

Poor Management of Credit Card Balances 

Credit utilization ratio is the ratio of your expenses on your card to the credit limit of your card. The credit limit on your card is set to indicate the upper limit of spending, however if you are regularly maxing out your card or utilizing a major part of your limit, it represents that you depend on credit for managing your expenses.  

Spending 30% or lower will be an ideal thing to do so that your credit utilization ratio remains low, thereby bringing your score higher. 

Additional Reading: How can you lower your credit utilization ratio? 

Closing Unused Accounts  

Often people think that having old credit accounts lowers their score, hence they end up closing their old credit accounts. However, credit scores are purely based on the information available on your credit report. A longer or an aged account shows that the borrower has been responsible towards credit for a longer duration and this element helps him in obtaining good offers on credit. 

So, if you have recently closed a credit card account on which you had been making regular payments to open a new one, then you may see a drop in the credit score, or your credit score may not move up that quickly.  

That being said, if you can close your loan account early without incurring much charges, it is suggested that you pre-close your loans, as repayments have more weight on your credit score. 

Applying For More Loans/Credit Cards Unnecessarily 

Application for new credit cards or loans will end up showing as hard inquiries on your credit report. This is irrespective of the fact if the loans /cards have been approved or rejected. Repeated applications for loans or cards portray you as a credit hungry person.  

Lenders may get a negative picture about you in this case. Increased number of hard inquiries cause a big hit on your credit score. If you have been applying for credit without much thought, the drop in your credit score or credit score not improving might be the result you would witness.  

Past Negative Record 

You may be paying your bills on time or keeping your credit utilization ratio low, however your credit score may remain negative due to your past records like bankruptcy. It takes 7 years to recover and turn your credit report positive, especially for instances where your account has been shown as delinquent due to nonpayment of dues for a long period of time, or where you could have opted for settlement of accounts due to your inability to pay the loan EMIs or Credit card outstandings.  

Mention of these events carry a deep impact on your credit score and takes a long time for them to go away from your report. So, it is suggested your resolve these negative accounts as soon as possible. 

Errors on your credit report 

When was the last time you checked your credit report? Errors on your credit report may take a toll on your credit score. It could be your name misspelled or a wrong PAN being shown as yours. Or it could be a late payment mentioned in the report by mistake. Or it could be graver errors involving identity theft or impersonation.  

Factors like double reporting of loans, closed loans being shown as Settled, or wrong credit limits shown are some of the errors that can be found on your credit report and these could drag your credit score down.  

Each of these errors go on to affect your credit score, therefore it is absolutely necessary for you to check your credit score/report regularly to see if there is something amiss and bring it to the notice of the credit bureau immediately for rectification.  

For this reason, it is also good to retain documentary proof of your accounts closure, payment in lump sump, etc for a considerable period of time.  

Credit Score Improvement 

Also, it is good to note that credit score improvement doesn't happen overnight. It takes persistent efforts spread over 3-6 months or longer depending upon where your credit score stands at the moment. During the process of credit score building, one single mistake also may end up bringing your credit score down all over. Therefore, you would need to tread very cautiously and avoid any mistakes that could potentially affect your credit score.  

Also, if you find you are struggling through the maze of loans and credit cards and finding it difficult to deal with them, and are struggling to improve your score, you can always get in touch with us for our Credit Improvement Service where we handhold you through the process of building a better credit score for you with actionable and easy to implement suggestions.  

It is advisable to check your credit report regularly. It is available for free on CreditMantri. 

Keep an eye on the abovementioned points to improve your credit score and build a healthy credit report.