Why is my credit score going down when I pay on time?

A credit score is a three-digit number which summarizes the creditworthiness and repayment capacity of an individual. The credit score is a maximum of 900 and anything that is below 650 is called a bad credit score. A decline in the credit score reduces the chances of getting any debt in the future. There are general guidelines as to how you can build your credit score. But some actions are overlooked that might affect your credit score and the impact is negative. 

The fact that credit scores are temporary and can be recovered easily is a sigh of relief. The scores can be increased positively by taking a few steps that will affect the score positively. Actions like buying a credit card or applying for a loan may cause an initial fluctuation but they will help build a good score in the future.

Factors that May Instigate a Decline in the Credit Score

The Credit Utilization is High

Even after paying your bills and keeping the payments timely and also  adhering to the timeline of the payment schedule, if you have a high credit utilization ratio, then it will have a negative impact on your  credit score and it will decline. The general guideline is that the credit utilization ratio should be 30%. Anything beyond this margin will result in a decline in the credit score. 

Applying for a New Credit in a Short Gap

The credit card companies and lenders will notify the credit bureaus when an application for credit card or a new loan is received. The credit bureaus will deduct a few points after the application of a new loan or a credit card. In such cases, the lenders and companies will be doing detailed scrutiny before lending the credit. This scrutiny is called a hard enquiry and will affect your score negatively. Having multiple card applications will also increase the risk in your credit profile and high risk is associated with a low credit score in the industry. Hard enquiries will not appear in the credit profile after a certain period of time and hence before applying for a loan or a credit card, thorough research should be done as to which product best fits your requirement and then the application should be submitted. 

Missed Payments

If at all you have missed a payment in the billing cycle, it will be shown in your credit report immediately. Thus, if any payments are missed, the credit report will be impacted severely till the time payments are made by the borrower on time for a series of payments in the cycle. The no payment will show in the credit report for quite a while and thus the recovery to a good report will be slow. If the credit utilization ratio is high, then it is expected that the recovery will be even slower.

Also Read: Does Missing A Payment Affect The CIBIL™ Score

Closing Old Accounts

It is not advisable to close all your old accounts as it will have an impact on your credit score. If you close a credit card, the utilization ratio will automatically be higher and the length of the credit history is reduced. Both these events will impact the score negatively. The credit score is made up of multiple factors that carry different weights in the credit score. The length of the credit history accounts for at least 15% of the credit score and thus a long history can help you maintain a good score. If the credit is closed on good terms, then the account is included in the credit report and it will affect the score minimally. 

Reduction in Credit Limit

Another reason why the credit score has dropped can be a decrease in credit limit from the issuer of the card or the lender of credit. For example, you had a certain credit limit and the utilization was 25% of the above credit. Now, if the credit limit decreases the utilization ratio will automatically rise and thus the score will be impacted negatively. 

Credit Mix

The credit mix forms at least 30% of your credit score and thus forms an important part of the credit report. It signifies the different credit options you are using and how you handle them. Maintaining a good credit mix will reflect the fact that multiple loans are handled by the borrower without any default in payments for the same. This will add to the credit report positively.

Also Read: How to improve your credit score?


It is disheartening to see your credit score go down. So a continuous evaluation and checking of your credit score are required. If you plan to avail of credit in future, these factors should be kept in mind and the credit report should be evaluated continuously.


FAQS Why is my credit score going down when I pay on time?

1:What causes the largest negative impact on the credit score?

The largest impact is caused by either non-payment or late payment of dues. These factors affect the score directly and thus should be avoided to avail of good credit in the future.

2:What is a bad credit score?

The credit bureaus will assign a score between 300-900 and a score which is less than 650 is called a bad credit score. 

3: Can incorrect information result in a declining credit score?

Yes, any incorrect information will result in a decline in the credit score as it shows negligence on the part of the borrower.