Every borrower knows how important a credit score is for their credit report. A credit score is a tool that allows lenders to evaluate the applicant’s creditworthiness while approving their loan, home loan, credit card application requests, etc. Borrowers try to improve your credit score and maintain a good score to get easy loan approval, pay lower interest rates, and receive other benefits and rewards associated with a good credit score. To ensure the same, they make timely payments.
However, even after showing healthy financial habits, some borrowers complain that their credit bureau scores remain low and do not improve. There could be various reasons why your credit score is not increasing. It is imperative to understand those reasons as it would ultimately help you identify how to improve your credit score!
6 Reasons Your Credit Score Isn’t Improving
Let’s take a look at the main reasons why your CIBIL score is stagnant and not improving:
1. Keeping Debt Balance
The amount you owe on your debt accounts, including loans and credit cards, can affect your credit score. Paying only the minimum credit card balance impacts your credit utilization ratio (CUR). Credit utilization is an important factor that makes your credit score. It is important to keep your CUR less than 30%. When your credit card balances go up, your credit utilization ratio increases. This impacts your score negatively. So, even after making timely payments, your credit score might not increase.
It would help to keep your credit utilization ratio as low as possible. For example, if your total credit card limit is Rs. 50,000, your credit balance debt should not exceed Rs. 15,000. DueFactory, the credit repair partner, can help you with more such tips.
2. Limited Credit History
A limited credit history is also one of the crucial reasons why your credit score is not changing. The age of your credit accounts determines the length of your credit history, the age of your oldest account, and the period since you opened your last account. The longer your credit history, the better your credit score. A limited credit history can restrict your credit score from increasing.
Are you thinking about how to improve your credit score by improving your credit history? Well, you cannot do much and need to wait! It takes time to lengthen your credit history. However, be informed that keeping an old credit card that you are not using increases your credit history. We suggest you maintain your old credit card account unless it charges you a heavy annual fee.
3. Applying For Too Many Credit Applications
When you apply for new credit, the lender checks your credit bureau reports. This triggers ‘hard inquiry’. Though a couple of hard inquiries after applying for a loan or credit card may have a little impact, multiple hard inquiries can pull your credit bureau score down. Many recent hard inquiries appearing on your credit report can show you as a riskier borrower to the lenders. Hard inquiries remain on your credit report for a few years, and its effect decreases over time. To raise your credit score, try to apply for limited new lines of credit and keep hard inquiries to a minimum.
4. Lack of Credit Mix
Having only one type of credit account also answers your question – why my credit score is not increasing! Your credit mix constitutes 10% of your CIBIL score. Create a mix of credit and fixed monthly installment accounts like mortgages, car loans, unsecured loans like personal loans, credit card dues, secured loans, student loans, etc. Having various credit accounts exhibits you as a responsible debt management borrower. The lenders see you as a person who can manage several types of debt. Improving your credit mix can raise your credit score considerably.
5. Error In Credit Report
Sometimes, the credit bureau updates the information wrongly or misses to mark the closed account. Even a creditor can report false information about your account to the credit bureau like missed or delayed payment, that would have never happened. Your credit limit might be wrongly updated, your account might show a high balance, etc. All these reasons can upset your credit health. We strongly recommend pulling your credit report and checking the reported information. Due Factory can provide credit report for free. Spot incorrect information on your credit report and dispute the same to boost your score.
6. Past Negative Record
How do you improve your credit score, which is not moving even after paying your bills on time? Your credit score may be stuck due to past negative records like bankruptcy. It takes significant time, sometimes up to seven years, to recover and raise your credit score. It takes time for credit health to improve when you have a delinquent account, and you did not pay the dues for a long time.
Wrapping up
Understanding the importance of building and maintaining a good credit score is vital. A good CIBIL score improves your creditworthiness, makes you an ideal candidate for lenders, gets faster loan approval, gets better interest rates and deals on credit cards, etc. It would help if you kept patience and work on improving your credit score. Soon, the results will also start showing up. Take the help of credit repair partner – Due Factory and embark on a successful credit-building journey!
Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
FAQs
1. Why is my credit score not increasing?
Ans. The main reasons for credit card scores not increasing include applying for too many credits, past negative records, keeping a debt balance, short credit length history, lack of credit mix, errors in credit reports, etc.
2. How does the credit utilization ratio affect credit score?
Ans. Credit utilization is an important determinant that impacts your credit score. Your credit card balances go up; your credit utilization ratio also increases. This impacts your score negatively. It is important to keep your CUR less than 30%.
3. How to improve your credit score by increasing the length of credit history?
Ans. A limited credit history can also restrict your credit score from increasing. Keeping an old credit card you are not using increases your credit history. You can maintain your old credit card account unless it charges you a heavy annual fee.
4. How do several credit applications affect my credit score?
Ans. When you apply for new credit, the lender generates a ‘hard inquiry.’ Multiple hard inquiries can pull your credit score down. It remains on your credit report for a few years, and its effect decreases.
5. Why should I monitor my credit report to increase my credit score?
Ans. Sometimes, the credit bureau updates the information wrongly. It is important to keep monitoring your credit report to identify the errors and false information in your credit bureau report and dispute the same to increase your credit score.