2 days ago

Why Credit Scores Drop Despite On-Time EMI Payments

Why your credit score can drop despite paying every EMI on time · livemint.com

Paying every EMI on time is important, but it is not the only thing that affects a credit score.

Using a large part of your available credit can make your score fall.

For example, using ₹80,000 out of a ₹2 lakh limit means 40% of the limit is being used.

Applying for many loans or cards in a short time can also hurt because lenders make hard inquiries.

Closing an old credit card may remove useful account history and reduce your total available limit.

Mistakes in a credit report, such as an incorrectly marked late payment, can lower the score too.

India now updates credit information every two weeks, so changes may appear faster.

After a decline, check your updated report for high balances, new inquiries, account changes, and errors.

Key facts

Illustrative utilization: ₹80,000 outstanding on a combined ₹2 lakh limit equals 40% utilization.
Suggested utilization level: Financial advisors typically suggest keeping usage below 30%, although there is no rigid automatic cutoff.
Hard inquiries: Multiple credit applications within a short period can cause a score dip.
Soft inquiries: Checking your own credit report does not affect your score.
Account closure risk: Closing an older card can reduce available credit and remove account history from the active credit profile.
Reporting frequency: The Reserve Bank of India mandated fortnightly credit-report updates effective January 1, 2025.
Recommended response: Compare an updated credit file with an earlier copy and check utilization, inquiries, account changes, and payment records.

livemint.com · 2 days ago