Why might your credit score fall even when you pay on time? 5 key reasons | Mint

It can become very confusing to understand how your credit score is fluctuating all the while you are regularly paying your bills in time.

Here are some reasons which could lead to a drop in your credit score even if you are prompt in paying your bills.

High credit utilization ratio

Your credit score has often been hugely affected by the credit utilization ratio-the ratio of how much of the credit made available to you is being used. This ideally needs to stay below 30%. If you keep swiping your credit card up to its limit or maintain high outstanding balances, it tells the lender that you are under acute financial pressure-leading to a negative influence on your score.

Recent credit applications

Whenever you apply for credit, it puts a hard inquiry against your credit report, which lowers your score any time temporarily. Each request shows to the creditor that you may take on more debt, which might affect their look into your credit listing.

Missed payments on other accounts

Although you may pay some bills on time, missed payments on other credit card accounts can overwhelm the history of good payments. Knowing that credit scoring models use your entire credit profile, just one late payment can pull down your score considerably.

Closing old credit accounts

Closing closing those older accounts will not only lessen your average account age, it also reduces your total available credit, further damaging the score. Keeping a good mix of credit accounts alone and leaving the older ones open should help build a stronger credit profile.

Inaccurate information on your credit report

This has got to be the most common-forger of lower scores. Therefore always keep reviewing your report for anything wrong on it: incorrect account reporting can ultimately lead you to lower scores. Should you find discrepancies, then you must dispute them with the respective credit profiles.

Hence to conclude, even with timely payments and regular clearance of bills etc., there are several factors that can lead to a decrease in the credit score of a credit card holder.

It is extremely important for you to consistently monitor these elements and ensure that good financial practices are introduced in life. These steps will help you in managing and continuously improving your credit score over time.

(Note: Using a credit card carries its own set of risks)