Tuesday, 29 December 2015

Getting Loans after a CIBIL Default

There have been instances when a person has been denied a loan or a credit card by a bank or financial institution owing to a bad credit report. It is often difficult to understand the real reason for the same, and what can be done to correct it.
Today, there are four credit bureaus or credit information companies in India, namely CIBIL, Equifax, Experian and CRIF High Mark. Of these, CIBIL is the oldest and hence very often, the term ‘credit report’ or ‘credit score’ is understood to be available only with CIBIL. However, all bureaus offer the same, and you can choose to avail of a report from any or all of them.

What is a credit report?
Credit bureaus maintain records of your credit history by way of a credit report. A report details information about your previous loan or credit card history, the payment pattern, length of credit history and the amounts outstanding.
A credit score constitutes part of the report and is essentially a three-digit summary of this information. When you apply for a fresh line of credit, the prospective lender scrutinises this all-important document to determine your creditworthiness, prior to taking a decision on the loan application.
These reports (and the score therein) are available for purchase on payment of a nominal fee from the bureaus, and it is always a good practice to keep track of your score by availing of this facility.
What is a credit default?
If there have been defaults on your card or loan account owing to delayed or skipped payments, this information will reflect in your credit report. Information is reported to bureaus by the concerned lenders, and it is subsequently analysed and maintained by the bureau. Note however that the bureau independently does not maintain a loan defaulter list.
To avoid being categorised as a defaulter, ensure that all payment on outstanding debt is made on time. If you are finding it difficult to meet the commitments, consider getting in touch with the concerned lender and working out a mutually beneficial solution, for example, by arriving at a settlement option that provides waivers or discounts on the current outstanding in the account.
How will a default affect my financial health?
While it may seem to be so, life isn’t over after a credit default! Yes, the situation may be seemingly impossible to get out of, but it can be done over a period of time. Unfortunately, while there is no quick-fix solution available, given time you can work towards improving your credit health.
Let us assume that you want to apply for a fresh line of credit, say an auto loan after a default has been reported to the bureau. A lender does not make a credit decision solely on the basis of a score; hence chances are that your loan will be sanctioned, albeit at a less competitive rate of interest.
In case your credit score has plummeted, you should not lose heart. Loan for low credit score or loan for bad credit score can be attained with following right approach. The first thing to do is to check your credit report. As mentioned, call for a copy of your report from any of the credit bureaus and go through it in detail. Try and work out a solution towards clearing as much outstanding debt as possible.
Further, consider applying for a secured loan product such as a gold loan, to start the process of rebuilding your score. To make this possible, be diligent with payments and ensure without fail that the EMI is serviced before the due date. Slowly, over a period of 12 months or so this account will start to reflect as ‘good’ debt on your report and will be a solid step towards bettering your score.
With this information on your report, a bank or financial institution is able to determine both your ability and intention to repay any outstanding debt. Timely payment on this loan account will therefore convey to a lender that not only do you have your finances sorted in order to pay the debt but also the very clear intention to do so.
Credit counselling is another good option to consider when you want to improve your score after a default. With the help of trained credit counsellors you can work out options that will, over a period of time, help you rebuild your score. At a later date, you will also be guided as to how you can not only maintain your score but enhance it subsequently.
Hence, to summarise, a default is not the end of the road, and you can indeed rebuild your financial and credit health.

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