How does credit counseling impact your CIBIL score?

How does credit counseling impact your CIBIL score?

A financial meltdown is not necessarily a bad thing. Let me rephrase that statement. It is cruel, but it is also a teacher; it’s in those the moments that you realize the importance of weaving in financial discipline in your day-to-day life.  It is when you are on a downward spiral that you can come up with the most sincere and ingenious ways to gain control over your financial health. Unfortunately, for many of us who don’t know the nitty-gritty of credit repair, we may need sound advice to see us through these difficult times. The technical nature of credit reports and the break-up of a myriad factors that determine our score make it a sensible choice for us to approach credit counselors.

The answer we’d like to know upfront is: does credit counseling affect your CIBIL score in a good or bad way? There is no doubt that counseling cannot impact your score negatively. In fact, it is just the opposite. When you are wondering how to boost your credit score and take it a step further by seeking the help of experts, you are already on the path of remedying your poor financial handling situation. Till date there is scarcely any evidence to the contrary. In fact, all the data points to the fact that when credit counseling is followed by credit repair strategies, the needle on the CIBIL score moves in the right direction and helps scores of strugglers to lead a healthy credit lifestyle. In what ways can counseling help your CIBIL rating? To know that, let’s take a closer look at how the credit score is put together.

Repayment History

The consistency with which you have paid your past debts – whether credit cards or personal loans or even secured loans, accounts for 30% of your CIBIL score. If you approach a credit counseling agency, it definitely means you have fallen off the debt obligation plan, which has affected your score negatively. Counseling or intervention from the side of counselors with lending institutions to settle your debt does not affect your score negatively. In fact, what will happen with counseling services is, you will be shown a plan to reduce your debt burden. As you start paying off what you owe to lending institutions, you will no longer have to worry about personal loans eligibility. Your score will start to recover and you will find yourself becoming a stronger contender for any kind of credit.

Credit Exposure

25% of the CIBIL score is weighted by the amount of credit that has been extended to you over the past few years – about 7 years to be more precise. When you apply for a credit card, you don’t often think of the consequences of having one too many cards, or using them extravagantly. However, banks would like to know how responsibly you have cleared your balances, or whether you have gone beyond a healthy credit utilization ratio (considered to be about 30%). If you’ve applied at random, made it a habit to live off credit cards and shied away from maintaining a zero balance each month – your score has taken a beating. Counseling can help you rebuild your credit handling reputation with suggestions, which if followed religiously, will get you back on track and improve credit score. By following the expert’s advice you will be significantly reducing the debt-to-income ratio, thus bolstering your score further.

Credit History Tenure and Mixed Credit

It is the open-ended accounts with debt on them that have an adverse effect on your credit score. Even if credit counseling and credit management programs require you to settle or close accounts that have gone bad for you, the history remains for quite some time. To be exact, it may take up to 7 years or more for CIBIL to completely ignore these accounts. So, this is one area that is beyond the scope of any direct effect; however, as mentioned earlier, credit management plans which improve repayment and credit utilization history will play a crucial role to see that your score improves.

While it is good to have a mix of secured and unsecured loans in your name; it is not advisable to go out of the way to apply for a secured loan, just to impact the credit score. It is more important to show lending institutions that you are capable of paying off any debt according to set terms and conditions.

A credit counselor or repair agency is you best ally in the face of financial distress. Their networking with various lending institutions and their insider knowledge of how CIBIL functions gives you an assured way to revive your credit health.