How can small mistakes hurt your credit score ?

Humans can make mistakes and they can be big or small. In credit sphere making small mistakes can also impact your credit score harshly.Credit scoring algorithms do not understand human nature. Let us understand the concept with an example.

Rahul Sharma, had recently bought a three-bedroom apartment in an upcoming locality close to his office. He had a car and was contemplating a big car after getting his annual raise, which came along sooner than expected.

Rahul's Cibil score was around 750 points on a scale of 900 the last time he had checked while buying his first car a couple of years ago. When he decided to apply for a loan to buy a Luxury Sedan, he was in for a huge shock. The bank informed him that his application was rejected because of a low Cibil score and a couple of negative remarks in his credit report. He pulled out his personalized Cibil score and found his score to be around 610.

Rahul had delayed a couple of his car loan EMIs and a couple of his credit card payments. Delayed or missed payments get reported on your credit report by the lenders and have a negative impact of pulling down your Cibil score.

Lenders often prefer a healthy credit score from their prospective borrowers. Here is a table to give you an idea of percentage of new loans sanctioned to people with different credit scores:

Credit score	Percentage of all new loans sanctioned in this Cibil score band
<650	4.7%
650-699	5.2%
700-749	9.7%
750-599	22.8%
>=800	57.6%

Source (cibil.com)

From the above table it is very clear that people with higher Cibil score stand a higher chance to get a loan. Also, it is important to understand that as risk-based lending is kicking into the Indian market, people with higher credit score also stand a chance to get loans at a lower rate of interest.

So, after Rahul studied his personalized credit report from Cibil, he realized his mistake. He had forgotten to deposit cash into the account from where his car loan EMI used to pass. This happened a couple of times and also delayed 3-4 credit card payments. The credit card company had mentioned days past due (DPD) against his account.It slashed his credit score.

It is very difficult to assess how much of a drop in credit score you could expect because of a single missed payment.  One could expect a drop of 50 to 100 points.
Credit score can even be repaired. You need to follow a financially disciplined life.

For ascertaining your score or acquiring credit repairing services contact us at www.cibilconsultants.com 

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