How to improve CIBIL score after default? | Credit Help India

How to improve CIBIL score after default?

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How to improve CIBIL score after default?

Praveen Sharma
Tuesday, March 5, 2019

In India, banks have become stringent when it comes to advancing a loan to an individual. So one should know their mycibil and ways to improve it. The loan must be granted to a borrower in whom banks may have every confidence and the borrower have a good credit score. The credit scoring system seeks to quantify the likelihood of an individual to pay off his debt on time.  An individual stay, past profits, prudent utilization of the previous borrowing is the aspect which is necessary to be examined by banks. The credit score system is originally designed to provide all financial institutions with financial profiles of individuals who wished to borrow money.

In India, CIBIL is a premier agency which provides all financial institutions the CIBIL scores and credit reports of an individual. CIBIL obtains the information about the loans and credit cards with the help of its associate partners which include members of bank and credit institutions. The information is prepared by preparing a credit report which is a document generated by a credit bureau which essentially captures in depth all information pertaining to an individual’s credit history. A CIBIL score is a three-digit numeric indication of individual creditworthiness. It normally ranges from 300 to 900.

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A CIBIL score plays a pivotal role from an individual point of view and also from the bank's point of view. A credit score helps to monitor individual repayment track record, whether he is likely to default on a payment or make timely payments. Having a good credit score, all the individuals and financial organization take advantage of various benefits as provided by the banks such as:

Quick approval of loans with no long procedures: A good CIBIL score helps an individual to have a quick approval of loans by avoiding long procedures because the banks may have confidence that an individual is capable of repaying the existing debt in future without any delay or defaulting it.

Less interest rate on loans: People usually with high CIBIL score get loans at a less interest rate in comparison to the borrower having a low CIBIL score.

No credit risk involved: A borrower having a high CIBIL score signifies low credit risk and due to which the individuals are not likely to default or delay any payments. With this banks are able to increase the credit limit of an individual.

Others: Banks are able to provide various credit card benefits with a good CIBIL score such as wider acceptance and recognition, lounge access, and also cash back and bonus points.

In a recent trend, there is no individual who is having a single banking transaction. It has been observed that there are some borrowers who apply for a loan or credit card and they use it and afterward make a regular payment for the first six months. Then after an optimum utilization, they apply for a big amount loan to take unfair advantage of the bank credit. A dishonest borrower can land bank in problems under such circumstances.

The CIBIL score of an individual change according to his repayment behavior and the efficiency of the lender in imparting that information further to the credit bureaus. It has become very significant to have a credit score updated and accurate because of the importance of data that it carries in recent trend. But if there is any default in the credit report of an individual due to reasons like:

A charge off: When a creditor charges off a debt it is indicative that the creditor would not be able to get the money an individual owe and wrote his account off as a loss. Hence this will make the credit score negative and lender might not be able to lend the money in the future to an individual.

Repossession: When a creditor reclaims collateral for a loan then the repossession appears on credit report which specifies that an individual was unable to repay debt as agreed.

Settled accounts: Sometimes a creditor may agree to accept a low amount than the total amount an individual owes to him so it is known that debt is settled. But in reality an individual was not able to repay the debt as originally agreed, settled accounts will still be considered to be negative on credit reports.

In case of default in his credit report, an individual should make efforts, in order to increase or improve his credit score because without a good credit score banks, may not have confidence and may give an impression that he is not capable of clearing his debts. There is gazillion means how to increase the CIBIL score after default which is as follows:

Regular repayment behavior: It is very crucial to make regular payments on time because this impact more on CIBIL score as a financially responsible behavior can give a positive impression on the lender.

Paying outstanding credit balances: Credit management is very essential to be adopted by an individual. He should pay off all his outstanding dues on credit on time because outstanding dues and increased balances on credit cards can lower the CIBIL score down.

Maintaining a credit utilization ratio: It is very essential to maintain a credit utilization ratio between 30-40%.  Because if the credit utilization rate increases it will represent that an individual is spending his most of the income on debt payments which can lower the credit score.

Keep a check on credit report: An individual should make sure that there are no discrepancies in the credit report. The individual should keep a check on his credit report after every six months to correct the errors so that there is no confusion in the minds of lender because there are some errors which give a negative impact on the CIBIL score. For instance, if the incorrect credit report is sent to the credit bureau it can lower the credit score.

The balance between the credit: The type of loan whether secured or unsecured an individual hold has a significant impact on his CIBIL score. An individual should try to maintain a balanced combination of both secured and unsecured loans as a greater proportion of secured or unsecured loan can lower the CIBIL score.

Thus, the CIBIL has helped the banks to know who is a fraudster and who is a good reputed individual. An individual should always keep in mind that financial and credit-related information contributes to the credit scores. He must make efforts to have a good credit report.

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