CIBIL: Are you paying your loan EMIs on time, yet your Cibil score is dropping? Is this mistake proving costly?

CIBIL Score is crucial for loan or credit card users. It's like your financial performance report card, indicating how responsibly you manage your credit. Most people believe that if they pay EMIs on time, their score will always be good. However, sometimes, despite paying EMIs, their CIBIL Score starts to drop. This can be confusing, leaving you wondering where the mistake lies.

If this is happening to you, be sure to check your credit mix and other factors. Banks consider many factors beyond your repayment history before determining your score. Learn more about credit mix and other factors here.

What is credit mix, and why is it important?

Credit mix means how many secured and unsecured loans you have taken.

Secured Loans (e.g., Home Loan, Car Loan)
Unsecured Loans (e.g., Personal Loan, Credit Card)
If you have mostly unsecured loans like personal loans and credit cards, and very few or no secured loans, it signals to banks and NBFCs that you rely heavily on credit. This can lower your CIBIL score.

On the other hand, if you have taken out both types of loans and have been making timely payments, it shows that you can manage your credit well. Such people are considered to have a balanced credit mix and a better CIBIL score.

That's why experts always advise against unnecessary personal loans or excessive use of credit cards.

These factors can also lower your CIBIL score.
1. Credit Utilization Ratio
The credit utilization ratio measures how much you are using your credit card limit. If you use 60-90% of your limit every month, it indicates your continued dependence on credit. Try to use only 30% of your credit card limit.

2. Age of Credit History
Your credit history begins to develop from the moment you first take out a loan or credit card. Your credit history is also considered when developing a CIBIL score. The age of your credit history and whether you have made timely payments after taking out a loan or using a credit card are all factors that impact your CIBIL score.

3. Loan Settlement or Being a Guarantor
If you have previously settled a loan or served as a guarantor for someone else's loan and they default on payments, this can also impact your score.

4. Errors in the credit report
Sometimes, incorrect reporting occurs by the bank or lending institution, such as a payment you made, but it wasn't updated in the system. This can also cause a score drop. Therefore, it's important to check your credit report regularly.

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