Why Your Credit Score Dropped Suddenly

Does your credit score drop when it’s checked?

The short answer is no; checking your own credit score does not affect it. Such occurrences are referred to as soft inquiries and are completely harmless. On the contrary, hard inquiries done when a creditor assesses your credit after you have applied for a loan or credit card can lead to a slight and short-term decline in your score.

Grasping the credit check dynamics, such as when and why your score drops abruptly, helps you stay ready and safeguard your financial position. Let's explore the major causes of a credit score decline and how one might bounce back.

Understanding Credit Score Checks: Does It Drop Your Score?

Credit score checks fall into two categories: soft and hard credit inquiries.

Let us find out what these are and how they differ:

Soft Inquiries

When an individual checks their credit score, it also allows companies to check their credit rating through a background check. Credit checks of this nature have no effect on the credit score.

Here are the examples:

• You're checking your credit score through websites like CRIF
• Your employer is performing background checks

Read More: What is a Tradeline in a Credit Report?

Hard Inquiries

When a lender reviews your credit history as you have applied for a credit product. These inquiries affect your credit score, but the impact is small and temporary.

Here are the examples:

• You applied for a home loan
• You submitted a credit card application

Why Did My Credit Score Suddenly Drop?

There are many reasons a credit score can drop. Let's go through each reason to identify the reason why your credit score dropped:

Late Or Missed Payments

Even if you miss one payment, your credit score drops. It signals trouble managing your financial obligations.

Pro Tip: Consider a personal loan to pay off high-interest debts and consolidate multiple debts into one.

Increased Credit Utilisation

Your credit score drops when you get too close to your credit limit. Your credit utilisation ratio goes up when you make a payment close to the credit card limit.

An increase in credit utilisation score signals that you are not well-positioned to opt for a new debt. Try to keep your credit utilisation ratio below 30% and, for the best scores, below 10%.

New Hard Inquiries

When you apply for a credit card or a loan, lenders use your credit score to assess your financial position. When they check your credit score, it appears on your credit report. These inquiries show financial distress. If you apply for too many credit products at once, it can negatively affect your score.

Errors In Credit Report

While rare, errors in your credit report can occur, such as an inaccurate payment history. It occurs when a lender accidentally reports incorrect data.

Additionally, it could also signal identity theft. This means that someone has taken a loan in your name. If you notice an inaccuracy in your credit report, you can raise a dispute with the credit bureaus.

You Paid off a Loan

A mix of active credit and instalment loans is good to maintain your credit scores. So, if you pay off a loan, it affects your credit mix. This leads to a reduction in your credit score. But this does not mean that you should avoid paying off your loan. You can still build a good credit score without each credit type.

Wondering how to check your CIBIL score online? You can check it easily on Hero FinCorp in just a few minutes!

The Impact of Hard Inquiries: How Much Does Your Score Drop?

A hard credit inquiry can cost up to 10 points, though in many cases the drop is less. A single inquiry takes fewer than 5 points. But submitting multiple credit requests in a short period compounds the impact.

Factors That Influence The Impact

The Impact of a hard inquiry depends on multiple factors. Here's a quick breakdown:

• Credit Health: If you have a strong credit profile, the impact will not be much. If your credit history is less favourable, the impact is noticeable
• Number of Recent Inquiries: Multiple inquiries make lenders think that you are risky
• Timing or Frequency: Inquiries for the same reason done within a short period, like 14-15 days, are considered as one single inquiry
• Age of Inquiry: The effect of hard inquiries is short-lived, and the impact decreases with time. An inquiry stays on your report for 2 years, but its effect usually lasts for 1 year

Steps to Identify Why Your Credit Score Dropped

Follow these steps to identify why your credit score dropped and pinpoint the exact cause:

Check Your Credit Report

Review detailed credit reports from credit bureaus.

Review these and spot:

• Hard inquiries
• Late or missing payments
• Errors or fraud

Use Monitoring Tools

Credit monitoring tools will notify you regarding the changes in your creditworthiness. These reports keep an eye on either your credit score or your credit report, which allows you to spot issues sooner.

Read More: 5 New RBI Rules That Will Change CIBIL Score Reporting

Tips to Improve Your Credit Score After a Drop

If you notice a drop in your credit score, here are the steps you should take to improve it:

• Automate your payments or schedule payment reminders to assure timely payments
• Limit your credit utilization ratio to less than 30%
• Maintain your existing credit lines and demonstrate a longer credit history.
• Don't apply for too many credits at one time, and just get a credit only when you need it
• If there are any mistakes in your credit report, report them to the respective credit bureau and get them corrected.

Stay Informed And Keep Your Credit Score Strong

A sudden drop in your credit score is alarming, but you need to understand the reasons behind it to improve it.

Keep your credit balances low, make payments on time, dispute errors, and limit multiple credit requests.

When taking credit, plan your applications carefully and manage loans wisely. Hero Fincorp offers quick loan approvals with a paperless process. In emergencies, this ensures you do not have to compromise your savings.

So why wait? Explore our instant personal loan solutions and stay financially prepared for the unexpected!

Frequently Asked Questions

Does checking my credit score lower it?

No, self-checking your credit score won’t have such a negative impact on it.

Why did my credit score drop by 100 points suddenly?

Late or missed payments, high credit utilisation ratio, reduced credit limits, bankruptcy filing, a series of hard inquiries in a short time frame, foreclosure, or mistakes could all lead to a 100-point drop in your credit score.

Can hard inquiries cause a major drop?

Hard inquiries do not cause a major drop. It usually leads to a drop of 5 to 10 points.

How can I find out which inquiry impacted my score?

Download your credit report from credit bureaus to see the inquiries made and match them with your recent applications.

Why did my score drop for no reason?

Your credit score drops because of increased credit utilisation, missed payments, closing old credit, a reduction in credit limit, identity theft, and errors in your credit report. If you notice any inaccuracy, raise a dispute with the credit bureaus.

Will closing cards improve or harm my score?

Yes. Closing your credit cards reduces your credit limits and shortens your credit history. This leads to a drop in your credit score.