How to improve CIBIL score after default?
Improve CIBIL score after default
People who have taken a loan are very well aware of the CIBIL score. If someone has ever defaulted on a loan, then a default status appears in their CIBIL report, and the CIBIL score drops very badly. After that, it becomes very difficult for them to get a loan.
It is not that every customer defaults on a loan intentionally. Sometimes, someone loses their job, or a family member falls ill, because of which they are unable to make timely EMI payments. Due to not paying EMIs on time, the loan becomes a default, and the default status starts appearing in the CIBIL report.
If a default status is showing in your CIBIL report, does that mean your CIBIL score will never increase? Will you never get a loan? No, that is not true. Your CIBIL score can improve even after default, and you can get a loan.
How you can improve your CIBIL score even after default and how you can get a loan, we will explain in detail.
Credit Score Range
The credit score ranges from 300 to 900. The higher the score, the better it is considered, and the lower the score, the worse it is considered.
What does it mean to default on a loan
As I have already explained, if you do not make your EMI payments on time, then a default can appear in your CIBIL report. If you continuously do not pay EMIs for three months, then that particular loan account becomes an NPA. And if you do not pay your credit card bill continuously for six months, then the credit card company will send that card to the default list. In some other loan cases, banks may wait for 12 months, but after that they also mark it as default and may write it off.
If someone has defaulted on a loan, then in their report you can see different types of statuses such as Written Off, Suit Filed, Settled, Wilful Default, etc.
Ways to improve CIBIL score after default
The first step is to check your CIBIL report because by checking it, you will understand what exactly has happened in your report. To check your CIBIL report, you can visit the official website cibil.com. If you take a subscription for the first time, you can get your report for free.
You can also check your report from other free websites, but the problem there is that the report is not always updated, and sometimes some companies may misuse your data. So, my recommendation is to check from the official website. You get one free report every year as per RBI guidelines. If you want to check more reports, then you need to take a subscription.
Apart from CIBIL, there are three other credit bureaus like Equifax and Experian, where you can also get your first report for free.
Checking the report for the first time is important because sometimes it has been seen that even after repaying the loan, the report is not updated and still shows default. This happens because sometimes banks do not send updated information to CIBIL after payment. Due to this, the old default status remains in your report.
In such cases, you can simply raise an online dispute and get your report updated.
Loan account has become default due to irregular or non-payment
You have still not made the payment, because of this a default status is showing in your CIBIL report. So what should you do in this case? The first step is to pay the outstanding dues. Since you have not made the payment, you must first clear it. Only after making the payment will the default status be removed from your CIBIL report, and then your CIBIL score will start improving.
For this, you can first visit your bank manager and ask how much outstanding amount is pending. The bank manager can check your account and calculate the exact amount you need to pay so that your loan account can be closed or updated and the default status can be removed.
Apart from this, you can also contact customer support. They can also inform you about the outstanding amount and how much you need to pay to remove the default status from your CIBIL report.
However, my best preference is to send an email. I suggest email because when you send an email, you receive a proper demand letter for the outstanding amount. Sometimes what happens is when you visit the bank or talk to customer support, they have recovery targets, so they may offer small discounts and ask you to settle quickly. But the problem here is that if you take a small discount, the default status may still remain in your CIBIL report.
So do not make this mistake. Whether you complain through email, visit the bank manager, or contact customer support, always take a demand letter. And whatever amount is mentioned in the demand letter, you should pay the full amount.
Pay outstanding towards your settled loan account
In case of a settled loan account, sometimes problems arise. You may have closed the loan through settlement, but to remove this “settled” status, you need to make further payment. However, when you visit the bank manager, they may say that the loan account is already closed and they cannot accept any further payment. This type of issue is more common in PSU banks, while in private banks it usually does not happen as they are more organized and provide a demand letter quickly for further payment. After payment, they also remove the settlement status.
But in PSU banks, the manager may refuse to accept payment, which is also correct because once the account is closed, further payment is generally not accepted. In such cases, what should you do? You can approach the higher authority of the bank, such as the district office or the nearby regional/head office. You can explain that due to financial crisis you were unable to pay earlier and had settled the loan, but now you want to pay the full amount and make the account “standard.”
They may then instruct the bank manager to accept the remaining outstanding amount. After receiving the demand letter, you can make the payment. After payment, always take a receipt, and whenever you close a loan, make sure to collect a No Due Certificate. In settlement cases, earlier you may receive a No Due Certificate mentioning “settled” status, but after making full payment, it should clearly mention “closed” status.
Rectification process
Once you have made the payment, do not sit idle. Sometimes rectification does not happen automatically even after payment. For this, you should raise a dispute online in CIBIL. There are two methods: either log in to CIBIL and raise a dispute, or if you are unable to log in, you can raise a dispute through another report.
By doing this, you can get the default status removed. Apart from this, you should also send emails—both to CIBIL and the bank. The reason for emailing both is that when you raise a dispute or email CIBIL, they forward the request to the bank for verification, and the bank then updates the status.
Sometimes due to internal miscommunication in the bank, correct information does not reach CIBIL, and your default status remains unchanged. But if you also send a complaint directly to the bank, then they receive requests from both sides and give higher priority to your case. After verification, they will update CIBIL accordingly.
If you do not receive a response to your first email, you can send follow-up emails. This helps in removing the default status from your CIBIL report faster.
Avoid multiple inquiries
If you make too many loan inquiries, they will also appear in your CIBIL report and your score will decrease. If your CIBIL score is already low and has a default status, and you keep applying for loans repeatedly or give your details to brokers, they may place multiple inquiries at once, which can severely reduce your score.
So avoid doing this. First improve your CIBIL score, and only then apply for a loan.
Check CIBIL Score
Your CIBIL score is low, due to which you are not getting a loan. Because of this, you keep checking your CIBIL score again and again. And how do you check it? By applying for a loan, because you think that by applying for a loan, you will get to know your score. Never make this mistake, because if you make inquiries like this, it will show in your CIBIL report and your score will also decrease.
Sometimes it also happens that someone’s friend works in a bank or in a non-banking finance company. You ask your friend to check your CIBIL score for you. Even in that case, an inquiry will be shown, and your score will decrease because of it.
If you want to check your CIBIL score, then check it from the official CIBIL website, or from any other credit bureau where you want to check your score. For checking multiple times, you may have to take a subscription by paying some amount, but in this case, your inquiry will not be shown in CIBIL and your score will not decrease.
Make Regular Repayment Practices
Pay EMI on time
Pay credit card bills on time
Service interest on time
Once your CIBIL score drops after a default, never default again. Keep making timely payments. Pay your credit card bills on time. If you have an OD account or CC account, then service the interest on time.
Because of non-payment, the CIBIL score drops very quickly. It falls rapidly. The score does not increase as quickly with payments, but if you keep making timely payments, your score will gradually improve.
Even after correcting a default, sometimes the score does not increase much. But if you keep paying your existing loans and any new loans on time, then your score will improve.
Maintain a Healthy Credit Mix
Unsecured loan
Secured loan
If you have only taken unsecured loans and are taking too many unsecured loans, your score may not increase much. Instead, take a secured loan, which helps improve your score faster.
Sometimes it also happens that you have only secured loans but no unsecured loan or credit card. Because of this also, the score may not increase much. So, if you have a secured loan, you should also take a credit card or an unsecured loan.
A good credit mix improves your score significantly. If your score is higher, you will also get loans at a lower rate of interest in the future.
Keep Your Credit Card Utilization Under 30%
If you use your credit card limit within 30%, your CIBIL score will remain good. If you use more than that, it negatively impacts your score.
For example, if your credit card limit is ₹1 lakh, then use it within ₹30,000. If you use more than ₹30,000, then in that case, make the payment quickly and reduce the outstanding amount, otherwise your score will be affected.
It is also possible that you have more than one credit card. For example, a customer has three credit cards: one with a limit of ₹1 lakh, another with ₹50,000, and a third with ₹30,000. The total utilization across all cards should still be within 30% to avoid any negative impact on the CIBIL score.
So remember, if you have one credit card with a ₹1 lakh limit and you want to use more than ₹30,000, then take a second or third card and distribute the usage. This way, your CIBIL score will not be negatively affected.
To Raise an Online Dispute in CIBIL
If you are unable to rectify your CIBIL report or improve your CIBIL score, you can also contact us. The Scorerocket team will help you improve your CIBIL score so that you can easily get a loan.