3 min
21-January-2025
Introduction: Why monitoring your credit score is important?
Your credit score plays a significant role in your financial health, influencing your ability to secure loans, credit cards, and even housing. Maintaining a good credit score opens up opportunities for better interest rates and favourable financial terms. However, many overlook the impact of closing a loan, such as a CA loan, on their credit score. Regular monitoring of your credit score allows you to understand how financial decisions—such as repaying or closing loans—affect your creditworthiness. Additionally, by staying informed, you can swiftly address any discrepancies or sudden drops in your score, keeping it on track for future financial needs. In this article, we will explore the importance of monitoring your credit score, particularly after closing a CA loan, and provide strategies to track, maintain, and improve your credit health.Understanding the impact of closing a CA loan on your credit
Impact on credit utilisation ratio: Closing a loan may decrease your available credit, increasing your credit utilisation ratio and possibly lowering your score.Effect on credit history length: Closing long-standing loans can shorten your credit history, which accounts for a portion of your credit score calculation.
Potential temporary drop: If you have an outstanding balance at the time of closing, it may impact your credit score negatively until the loan is fully settled.
Boost in credit score post-closure: If you clear the loan successfully, it can eventually lead to a higher credit score by reducing your overall debt load.
Impact on credit mix: Closing a loan could alter your credit mix, a factor that contributes to 10% of your score. A diverse mix of credit accounts is favourable.
Final loan settlement reports: Ensure the loan closure is reported accurately to the credit bureaus to avoid any discrepancies affecting your score.
Methods to track your credit score after CA loan closure
Check credit reports regularly: Monitor your credit score by checking your credit report from major bureaus like CIBIL, Experian, or Equifax.
Use free credit score tools: Leverage free tools provided by financial institutions or third-party services to check your credit score periodically.
Sign up for alerts: Many services offer alert systems that notify you of any changes in your credit score, including after closing a loan.
Review loan details: After closure, check your loan details to ensure there are no errors or pending balances. You can view your loan details to ensure accuracy.
Monitor credit utilisation: Keep an eye on your credit utilisation ratio, as changes in available credit may affect your score.
Track credit inquiries: Excessive credit checks can impact your score. Keep track of all recent inquiries made to your credit report.
Use loan statements: Regularly check your loan statement for any discrepancies after loan closure, ensuring all records are up to date.
Recheck after a few months: Post-loan closure, it’s a good idea to recheck your credit score after a few months to observe any long-term impact.
Using free credit score tools and services
Online financial platforms: Many financial websites provide free credit score tracking tools. These platforms often include credit score simulators to forecast potential impacts.Credit bureau services: Directly from credit bureaus like CIBIL, you can access a free report once a year. This service often includes a detailed breakdown of your credit score.
Banking services: Some banks offer free credit score access for their customers through their online platforms or mobile apps.
Third-party apps: Free apps like Cred, BankBazaar, and others provide credit score tracking and analysis without any charges.
Instant score updates: Many services update your score instantly after closing or repaying loans, offering transparency in real time.
User-friendly dashboards: These tools provide an easy-to-understand interface that breaks down how each aspect of your credit report affects your score.
Educational resources: Many free tools also offer articles, blogs, or webinars to help users understand how to improve their credit health.
How to address a drop in your credit score?
Check for errors: Review your credit report for any inaccuracies, especially after closing a loan. Dispute any incorrect entries with the credit bureau.Pay down outstanding debt: A high outstanding balance could be a key factor. Work towards reducing your debt to improve your score.
Ensure loan closure is reported: Verify that your loan has been officially marked as closed by the lender to avoid negative reporting.
Increase credit limit: If your credit score drops due to increased credit utilisation, consider requesting a higher credit limit on existing accounts.
Timely payments: Ensure all bills and payments are made on time, as late payments negatively affect your score.
Reduce credit inquiries: Avoid applying for new credit immediately after a score drop, as each inquiry can further impact your score.
Best practices for maintaining a healthy credit score
Timely bill payments: Always make your payments on time to avoid penalties and negative entries.Maintain a low credit utilisation ratio: Aim to use less than 30% of your available credit to keep your score healthy.
Diversify credit types: Having a mix of credit types (credit cards, loans, mortgages) can benefit your score.
Keep old accounts open: Long-term accounts contribute positively to your score by enhancing the length of your credit history.
Monitor regularly: Regularly check your credit score to ensure you’re on track and catch any potential issues early.
Settle debts quickly: Try to pay off any high-interest debts as soon as possible to reduce your financial burden.
Limit new credit applications: Apply for credit only when necessary to avoid unnecessary hard inquiries on your report.
