why is my credit score going down, even when i pay on time?

your credit score is affected by more than one reason, so you might have made your credit card bills payment and loan due payments on time, but your credit score is going down. many people assume that if they have paid their dues on time, their credit score should be high, and when it's not the case, they wonder why. if you also want to know why your credit score is going down, even though you have paid all your bills on time, then we are here to help. read below to find out the five most common reasons why you may have a lower credit score range than you expected:

1. you have a high credit utilization ratio

you might have paid your bills on time, but you also need to check the balance you carry on each credit card. if you have a high credit utilization ratio, it can cause a drop in your credit score. you should check your credit limit usage on both an overall and per-card basis. it's ideal that you should not consume more than 30% of your credit limit on any card. if you want to have a good credit score, scale down your credit utilization ratio. for example, you have a relatively low limit on a credit card and you use it to buy a new air conditioner. if you don’t pay off enough before the next billing cycle, your credit score can drop. however, credit card providers typically report to the credit bureaus every month, so as soon as your credit card payment, your credit score will improve.

2. you missed payment and the same is showing on your credit report

missed payments that are 30 days late or more can severely damage your credit score because timely payments are one of the biggest factors that build your credit score. the worst part is that the late payments stay on your credit report for over five to seven years. you can improve your credit report by piling up a streak of on-time payments, but the recovery will be slow, especially if you have a high credit utilization ratio.

3. identity theft or a mixed credit file is decreasing your credit score

it happens sometimes that someone else’s credit activity is being reported as yours in your credit report. if your credit score is dropping constantly even after you pay your bills on time, check your credit report to find out if someone else is using your credit card or applying for new credits in your name. if this is the case, you should immediately inform the credit card company and the lender about the fraudulent activity. it is also possible that your credit files have become mixed with your namesake which is dragging your credit score down. whatever be the case, you should inform the credit bureaus to rectify the misinformation.

4. you applied for new credit in a short gap

credit bureaus cut a few points from your credit score every time you apply for a fresh credit card or a fresh loan. it does not matter whether you have applied or the lender has offered the credit. whenever a lender inquires about your credit score and credit report, it is considered a hard inquiry and causes a drop in your credit score. having multiple credit applications is linked with a higher risk that you won’t be able to pay as agreed, and as you know - higher risk equals lower credit score. if your credit score is dropping because of too many credit applications, the solution is to stop applying. The hard inquiries generally disappear from your credit report after two years. if you want to get a new credit card or a fresh loan, first do your research to find out the product that best fits your financial requirement and your eligibility for the same based on your current credit score. once you are satisfied, then only apply for it.

5. there's a default judgment and you don’t know it

your credit report contains information from public records such as lawsuits and settlement orders. it might be possible that there is a default judgment against you that you might not be aware of. for example, if a summon letter was issued but was misdelivered or not forwarded to you, then you would know nothing about the lawsuit.if this is the case, you should make a decision whether you want to accept the judgment, settle it or challenge it further.

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