Why Credit Score Decrease? Top Reasons and Ways to Fix It

Have you ever accessed your credit report and wondered, why credit score decrease when I am paying my EMIs on time?” You are not alone. Many borrowers get confused when their credit score falls without any apparent reason.

Your credit score is vulnerable to many factors. Even small financial habits can impact it. In this blog, we will explain the major reasons for low credit score, hidden triggers that cause sudden drops, and practical steps on how to increase low credit score effectively.

Understanding Your Credit Score:

Your credit score is a numerical representation of how well you have been using borrowed funds. In India, it typically ranges between 300 and 900, and is determined based on your repayment behavior, credit utilization, types of loans, and overall credit performance.

Rather than looking at it as a mere number, consider it a reputation score that reflects your creditworthiness.

Here’s how lenders typically view different ranges of credit scores:

• Above 750 – Strong credit profile with high approval chances and better interest rates
  
• 700 to 749 – Stable credit behavior with good eligibility for most loans
  
• 650 to 699 – Moderate risk; approval possible but terms may be stricter
  
• Below 650 – Higher risk category; loan approval may be difficult or expensive
  

A higher score signals financial discipline, while a lower score suggests repayment risk. That’s why maintaining a healthy credit score can make borrowing easier and more affordable.

Why Credit Score Decrease Even After Timely Payments?

If you are asking, why credit score decrease despite paying on time? the answer may lie in other factors beyond EMIs.

Your score depends on:

• Payment history
  
• Credit utilization
  
• Credit mix
  
• Length of credit history
  
• Recent credit inquiries
  

A drop can happen even if just one of these areas changes negatively.

Top Reasons for Low Credit Score

Let’s look at the most common reasons for low credit score.

1️. High Credit Card Utilization

Using too much of your credit limit signals risk.

For example:

Experts recommend keeping utilization below 30%.

Even if you pay on time, maxing out your card can answer your question: why credit score decrease?

2️. Late Payments (Even by a Few Days)

Payment history contributes heavily to your score. A single delayed EMI or credit card bill can reduce your score significantly.

Even a delay of 30 days can stay on your credit report for years.

3️. Multiple Loan Applications

Every time you apply for a loan, lenders make a hard inquiry.

Too many inquiries in a short period may signal financial stress, leading to a drop.

This is one of the hidden reasons for low credit score many borrowers overlook.

4️. Closing Old Credit Cards

Closing your oldest credit card reduces your credit history length. A shorter history can negatively impact your score.

Keeping old accounts active (with minimal usage) helps maintain stability.

5️. Errors in Credit Report

Sometimes, the reason is not your fault.

Common errors include:

• Incorrect overdue amounts
  
• Loans marked as unpaid despite closure
  
• Identity mix-ups
  

This is why regular monitoring is important.

Some financial platforms like Olyv allow users to review their credit details and check eligibility insights before applying for loans. Monitoring helps detect issues early.

6️. Loan Settlement Instead of Closure

If you settle a loan for less than the total due amount, your report may show “settled” instead of “closed.”

This negatively affects your score because lenders see it as partial repayment.

7️. Becoming a Guarantor

If you act as a guarantor and the primary borrower misses payments, your credit score may also suffer.

Many people don’t realize this connection.

Hidden Triggers That Cause Sudden Drops

Sometimes, your score may drop suddenly. Here are possible hidden reasons:

• Increase in total outstanding debt
  
• Reduction in total available credit
  
• Reporting delays by lenders
  
• Fraudulent transactions
  
• Newly added negative remarks
  

Understanding these triggers helps you answer: why does credit score decrease unexpectedly?

How Much Can Your Score Drop?

Here’s an approximate example:

Note: Actual impact varies.

Even small mistakes can lead to noticeable changes.

How to Improve Low Credit Score

If your score has dropped, don’t panic. The good news is that you can rebuild it.

Here’s how to improve low credit score step by step:

1️. Pay All Dues on Time

Set auto-debit reminders for:

• EMIs
  
• Credit card bills
  
• Utility payments linked to credit
  

Consistency is key.

2️. Reduce Credit Utilization

If your credit card limit is ₹1,00,000, try to keep usage below ₹30,000.

You can:

• Pay before the billing cycle ends
  
• Request a credit limit increase (if eligible)
  

3️. Avoid Multiple Loan Applications

Apply only when necessary. Too many applications in a short period can hurt your score.

4️. Check Your Credit Report for Errors

If you find incorrect entries, raise a dispute with the credit bureau immediately.

Errors once corrected can improve your score quickly.

5️. Maintain a Healthy Credit Mix

Having both secured loans (like home or car loans) and unsecured loans (like personal loans or credit cards) can improve your profile if managed properly.

6️. Avoid Loan Settlements

If possible, clear full dues instead of settling for partial payment.

How Long Does It Take to Improve a Low Score?

Improvement depends on the issue.

• Minor utilization issues: 1–2 months
  
• Late payments: 3–6 months of consistent repayment
  
• Settled accounts: May take longer
  

Credit repair is gradual. There are no instant fixes.

Smart Habits to Maintain a Healthy Score

Once you recover your score, maintain it by:

• Checking your report every 3 months
  
• Paying bills before the due date
  
• Keeping utilization low
  
• Avoiding unnecessary debt
  

Financial awareness is the best long-term solution.

Final Thoughts

If you’ve been wondering why credit score decrease, remember that it’s rarely due to just one factor. Several small habits combine to impact your credit profile.

Understanding the key reasons for low credit score helps you take control of your finances. More importantly, knowing how to improve low credit score gives you a clear recovery path.

A strong credit score means:

• Faster loan approvals
  
• Lower interest rates
  
• Better financial opportunities
  

Monitor your credit regularly, stay disciplined with repayments, and make informed borrowing decisions. Small improvements today can lead to significant financial benefits tomorrow.