CIBIL Score: Tips to improve credit score after loan default

CIBIL Score Check Report: Lenders, banks and NBFCs, keenly watch the credit score of an individual before lending money. In India, CIBIL or Credit Information Bureau (India) Limited is the most preferred credit report. This is why CIBIL plays a very important role when someone is applying for a secured or unsecured loan. But there are numerous instances or common mistakes that result in a drop in your CIBIL credit score. Improving your CIBIL score after default is a daunting task, but it is possible. 

According to Radhika Binani - Chief Product Officer, Paisabazaar - not paying the EMIs of your loan or outstanding credit card bills past the due date, especially over a long period of time, is detrimental to your credit score and till the time you pay it off, your credit score will continue to decline sharply and is likely to fall to a poor score over time. 

"Also, as long as you have outstanding debt, it’s unlikely any lender would provide you with any form of credit," she said. 

According to Amit Gupta - MD, SAG Infotech - a low CIBIL score indicates that you are a high-risk borrower and it can affect your ability to get new credit. 

Tips to improve CIBIL score

Fortunately, there are steps you can take to improve your CIBIL score after defaulting on a loan or credit card payment.

The first and foremost step towards improving your credit score after defaulting on one or more repayments is to clear your outstanding dues completely. The earlier you do this, the better. 

"But remember, clearing your dues is different from settling your credit account. Some lenders may accept a one-time part-payment to settle your dues. In this case, the loan account in your credit report will reflect “settled” not closed. This essentially means that you were unable to repay the full outstanding amount. A “settled” loan account is a sign of high risk for lenders and you are unlikely to get any form of credit in the near future," Binani told Zee Business.

Keeping your credit utilization low is also a key factor to improve your credit score. 

"Aim to keep it below 30-40 per cent of your available credit limit. And finally, don't apply for too much credit. Every time you apply for a loan or credit card, a hard inquiry is placed on your credit report. Too many of these can have a negative impact on your score, so try to limit the amount of credit you apply for," Gupta said. 

Binani also advised people to improve their repayment records by paying all credit card bills and EMIS in full and on time every time. 

"If you do not have any active credit account, you can take a secured credit card and use it wisely to improve your repayment record. But do remember, any significant improvement in your credit score will take time," she added.

How difficult is it for people with negative credit score to get a loan?

An applicant’s credit history is one of the most important factors for any Bank or NBFC when they process his/her loan or credit card application. 

"If the credit score is low or the credit report shows poor behaviour with credit, like regular delays or defaults on repayments, outstanding dues past due date, multiple credit applications within a short span of time, most lenders are likely to reject the loan application," the Chief Product Officer of Paisabazaar said.