Friday, 13 March 2015

Why does my credit score change?

We believe if we don’t change any of our financial habits, our credit shouldn’t change. But our credit score depends on our credit history which keeps changing, little by little. When you generate a credit score from a credit bureau, it generates a new credit score for each credit score request and gives you the updated credit score.

There are three credit reporting bureaus- CIBIL, Experian and Equifax who create your credit reports and your credit score is based on that. When the credit bureaus receive new balances, enquiries, recent payments and any other information from your lenders; your credit report is updated and a new credit score is calculated based on this recently updated information.Any small variation in your credit line could have an impact on your credit score, the main factors being changes in your payment and borrowing behaviour.

·   When you make payments, your total debt reduces which is one of the factors to calculate your credit score.

·   Old items i.e. negative credit history like bankruptcy disappears from your credit report after 10 years and that may account for some changes in your credit report. In the same way, when you close old credit card accounts they fall off your report after a period of time too.

·   When you use too much of your available credit, your credit utilization ratio rises thereby dropping your credit score. Keeping it low is the key to maintain a good credit score.

All these may account for small changes in the credit report, but they are changes nonetheless.

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