Credit Sudhaar is India’s first Credit Health management & improvement company whose goal is to help clients to Restore, Enhance and Protect their Credit and make them credit healthy
Consider a situation where a borrower has taken a loan few years ago and has been paying the equated monthly instalments (EMIs) regularly, until a few months ago. Because of certain unforeseen circumstances, he was not able to pay these instalments for the past 6 to 8 months. Owing to this lapse in payment, his Cibil credit information report (CIR) shows payment default for those months.
What recourse does the borrower have in this case? Will he be denied credit facility by all the banks? How can he improve his credit report and credit score to be eligible for accessing credit again?
Almost all credit grantors assess Cibil CIR and credit score along with other factors like the applicant’s income before deciding on credit applications. In the cited scenario, the borrower’s CIR will show the defaults for those 6 to 8 months where the borrower has defaulted on the payments. This may also negatively impact his credit score.
Cibil started providing credit reports and scores directly to consumers with a motive to increase transparency of the credit lending process, which earlier was a mystery for most consumers. By accessing and knowing their credit report and credit score consumers are now able to “see themselves as lenders do”. This empowers them to determine their credit liabilities, identify areas that require improvement and ensure that they build reputational collateral with the lender for availing credit when they need it.
In a situation like this it is advisable that the borrower should not apply for any further credit facilities until his present outstanding gets cleared. Credit report and credit scores are dynamic and change according the credit behaviour of the borrower. Once the borrower has paid all the delinquent EMIs and has again started regularly paying the instalments on the loan his credit report will improve and reflect the regular payments accordingly. The credit score may also improve gradually. Here are some tips for the borrower for improving his credit history and score:
Approach your lender and explain to them your situation. They may provide you with easier repayment options or a solution to your problem.
Pay all your outstanding dues and EMIs that went delinquent. Offer to pay any penalties charged on late payments.
Start paying all your future EMIs regularly by the due date.
Review your credit history frequently to check the updated status of payment on your report.
And most importantly, do not apply for anymore loans or credit cards till your report improves. If you have made applications for loans, this will reflect in the “Enquiry” section of your CIR and will show that you are “credit hungry”.
Institutionalised and regulated credit facilities provide us opportunities for fulfilling our financial development aspirations. It is imperative to respect these opportunities and maintain financial discipline in order to ensure that you have access to finance when you actually need it.
Even if you have been delinquent in the past on your credit accounts, you can always start by paying off your dues and gradually work towards building a good credit record again. The institutionalised credit system always gives scope for improvement.