3 min
19-December-2024
Why monitoring your credit score is important?
Your credit score is a crucial financial indicator that reflects your creditworthiness. It determines your ability to secure loans, credit cards, or even rent a home. Closing a loan, such as a personal or home loan, can impact your credit score both positively and negatively. Monitoring your credit score after loan closure allows you to understand these changes and take corrective steps. It also helps detect inaccuracies or discrepancies in your credit report, which can adversely affect your score. By keeping a close eye on your credit score, you can make informed financial decisions, improve your borrowing power, and maintain a healthy credit profile. Whether it’s checking for drops in your score, addressing errors, or using tools to track progress, regular monitoring ensures that your financial health remains robust. Let’s explore how closing a loan impacts your credit and how to manage it effectively.Understanding the impact of closing a personal loan on your credit
Reduction in credit mix: Closing a personal loan reduces the diversity of your credit accounts. A varied credit mix improves your score, while limited credit types can cause a slight drop.Impact on credit history: Personal loans contribute to the average age of your credit accounts. Closing a long-standing loan can lower the average age, impacting your credit score negatively.
Improved debt-to-income ratio: On the positive side, closing a personal loan decreases your overall debt, improving your debt-to-income ratio, which lenders view favourably.
Payment history remains: Timely payments on the personal loan continue to reflect on your credit history, positively impacting your score even after closure.
Temporary score drop: Your credit score may drop temporarily after closing the loan, as it affects your overall credit utilisation and account mix.
No new credit available: Closing a personal loan reduces the amount of available credit, which can increase your credit utilisation ratio if other debts remain high.
Opportunity for better credit management: Once the loan is closed, you can focus on other credit obligations, paying them on time to strengthen your score further.
Avoid closing accounts prematurely: If you close the loan too soon, you miss the chance to build a long-term positive repayment history, which is crucial for credit health.
Methods to track your credit score after personal loan closure
Credit bureaus: Access your credit report from authorised bureaus like CIBIL, Experian, or Equifax. These reports offer insights into changes in your credit score.Free annual reports: You are entitled to a free annual credit report from each bureau. Review these to identify any discrepancies post-loan closure.
Banking apps: Many banks offer free credit score tracking through their mobile applications. Monitor it regularly to track changes after closing your personal loan.
Credit monitoring services: Several third-party platforms provide real-time credit score monitoring. They send alerts for changes, ensuring you stay updated.
Online financial platforms: Websites offering financial services allow you to check your credit score monthly. Some platforms also provide customised credit improvement suggestions.
Loan provider tools: Lenders, like Bajaj Finserv, often provide tools to track loan-related details. You can check your personal loan account number for closure updates and track your score.
Subscription services: Paid subscriptions to credit monitoring services allow you to access detailed credit insights, including how loan closure impacts your score.
Regular self-check: Keep an eye on your score monthly or quarterly. Consistent monitoring ensures you spot significant drops or improvements early.
Email alerts from credit bureaus: Sign up for alerts from credit bureaus to get notifications about changes in your score.
Financial advisors: Seek help from financial advisors to understand credit reports and implement strategies to recover any lost points.
Using free credit score tools and services
CIBIL score portals: Use CIBIL’s official website to access your free credit score. It provides a comprehensive report, detailing any recent loan closures.Experian’s free tools: Experian offers a free credit score tool to monitor changes. It helps identify drops caused by loan closures or other financial activities.
Equifax credit reports: Equifax provides one free report annually. Use it to understand the impact of closing your personal loan on your credit profile.
Bank-specific services: Some banks offer free credit score checks to their customers. Use their online portals or mobile apps to monitor your score.
Financial websites: Platforms like Bajaj Finserv provide free credit score checks. You can also contact them at their Bajaj Finserv personal loan contact number for further details.
Third-party platforms: Many apps and websites offer free tools for monthly credit score checks. They provide breakdowns of factors affecting your score.
Government initiatives: Some government-backed platforms also allow users to check their credit scores for free.
Email reports: Register for automated email reports from credit monitoring platforms to track changes effortlessly.
Mobile applications: Download financial apps that offer free credit score services. Regular updates help in monitoring any score fluctuations post-loan closure.
No-cost consultations: Some platforms offer free consultations on credit health along with the free score to guide you on improvement strategies.
How to address a drop in your credit score?
Identify the cause: Review your credit report to identify reasons for the drop, such as loan closure, high credit utilisation, or errors.Maintain low credit utilisation: Keep your credit utilisation below 30%. Avoid maxing out credit cards after closing a personal loan.
Pay bills on time: Consistent, timely payments on existing credit obligations can help recover lost points.
Avoid taking new loans: Avoid applying for new credit immediately after closing a personal loan to prevent hard inquiries that further impact your score.
Dispute errors: If you find inaccuracies in your credit report, raise disputes with the credit bureau for corrections.
Keep old accounts active: Avoid closing old credit accounts, as they contribute positively to your credit history.
Diversify credit types: Maintaining a healthy mix of credit, such as credit cards and loans, helps balance your profile.
Seek professional guidance: Consult financial advisors to create a personalised plan to recover lost points.
Best practices for maintaining a healthy credit score
Make timely payments: Always pay EMIs, credit card bills, and other obligations on or before the due date to build a positive payment history.Monitor your credit score regularly: Regularly check your score to identify and address any issues promptly.
Keep credit utilisation low: Avoid using more than 30% of your total credit limit. Low utilisation positively impacts your credit score.
Maintain a balanced credit mix: Use a mix of secured (loans) and unsecured (credit cards) credit to demonstrate responsible credit handling.
Avoid frequent hard inquiries: Limit new credit applications, as hard inquiries reduce your credit score.
Avoid closing old accounts: Retain old credit accounts to maintain a longer credit history, which strengthens your score.
Address errors immediately: Dispute inaccuracies in your credit report to prevent unnecessary score drops.
Use credit wisely: Avoid taking on unnecessary loans or debt, and focus on manageable repayment obligations.
Set up payment reminders: Use apps or automated reminders to ensure you never miss due dates.
Regularly review financial health: Periodically evaluate your debts, savings, and credit usage to ensure balance and financial growth.
