Ways To Rebuild Your CIBIL Score After Bankruptcy

Although it is difficult to obtain credit after a bankruptcy, it is not impossible. If you see the word bankruptcy on your CIBIL report, it indicates you’ll have to pay more to borrow more. However, bankruptcy should allow you to start over and begin saving because all of your debts will be discharged. In addition, create a sizable emergency fund.

What is Bankruptcy and Its Relation with CIBIL Score?

Bankruptcy is the legal status of a person or company that is unable to repay a debt owing to creditors. For example, it could happen if you have suffered a significant loss in your business, lost a job, or been involved in an accident that has rendered you paralysed or crippled. When a person declares bankruptcy, his CIBIL score drops, and a low CIBIL score makes it impossible to obtain additional credit. Your bankruptcy will appear on your credit report for up to ten years.

Before you begin working to improve your low CIBIL score, you need first to understand what it is and why it is so essential to your financial future. When you ask for credit of any kind – credit cards, vehicle loans, mortgage or rental agreements, student loans – the financial institution first looks at your CIBIL score check to assess whether or not to lend to you. Many lenders consider FICO scores while making lending choices. If your FICO scores are in the mid 700 or higher, it generally suggests you have good credit and should have no trouble getting approved, providing you meet the lender’s other conditions.

What are the Ways to Begin Improving Your CIBIL Score?

The methods to improve CIBIL score is as follows:

CIBIL score check

Continue with CIBIL score check and obtain your CIBIL report and ensure that all of the information mentioned and recorded is correct and that no errors have been made in its entry. Look for mistakes and inconsistencies.

Applying for a Secured Credit Card

Secured cards are issued against exchange for a refundable deposit. The credit limit is a % of the money you have saved as a fixed deposit. This will assist you in improving your low CIBIL score, and after you have the credit card, make sure that you make all payments on time while also spending consistently on the card and staying within your credit limit and making monthly payments on time. Allowing a late payment or default on other loans, if you have any, is never a good idea. To ensure that your credit score rises, you must use the credit card regularly. In India, these credit cards are available from ICICI Bank and Axis Bank.

Pay your Payments on Time

Your payment history accounts for 35 percent of your CIBIL score. You can ask the bank to make the payments on your behalf by setting up a standing order, ensuring that you do not miss or make a late payment.

Take Out a Car Loan

A year or two after declaring bankruptcy, try getting a car loan. Purchase an automobile when you are confident that you will be able to pay off the loan. The lenders will charge a hefty interest rate, so shop around and get quotations from different banks and NBFCs.

Never Use a Credit Repair Service to Improve Your Credit Score

They are costly, and not everyone is authentic; therefore, be aware of these services. It’s good if you repair your credit so you can see where you went wrong in the first place and avoid making the same mistakes in the future.

Maintain Your Credit Limits

You must keep within your credit limitations once you have re-established your credit. Maintain minimal credit amounts, settle them on promptly, and avoid late payments.

With Fixed Bills, Use Autopay

Whatever credit card you have, make your low credit score repair strategy as simple as possible. Choose a pre-set monthly expense, charge it to your card, and have that amount automatically met through your bank’s bill pay system.

If you’ve had problems staying out of debt in the past,  you can believe this is a great approach to get back on track. All you’ll have to do is make sure your checking account has enough funds to cover the charge and keep an eye on your credit card account bills.

Obtain a Co-Signer

Do you want to make a larger loan? That may make sense if you need to finance a costly item, such as a car or a new laptop. Another option is to know someone with excellent credit and a high salary who is willing to act as a co-signer. Loans that are for a couple of years can assist you in building your credit history.

The loan will appear on both of your credit reports and be factored into your credit ratings, but you will be jointly liable for the obligation. If you do not pay on time, your co-signer will have to. Go through CIBIL score check regularly to know about your credit score, see if there are errors, and get it corrected immediately to avoid further problems.

Set Up Money for Emergencies

When you don’t have money set aside for emergencies, a modest but unexpected expense might throw your finances out of line, enticing you to incur new debt or skip bill payments. Even if you can’t afford to put a lot of money into an emergency savings fund, start with a small goal, such as saving one month’s rent. The best way to begin is to set away a small amount of money from each pay check.

What is the CIBIL Score Range and Its Importance?

As previously stated, a person’s credit score might range from 300 to 900point. The better the odds of securing a loan is by having a high credit score. You can have a CIBIL score check online to know what your financial profiles states. The following are the various credit score ranges and their significance:

• If the individual has zero past credit history, the credit score is reported as Not Applicable (NA)/No History (NH).
• Individuals with credit scores ranging from 300 –  549 are deemed to have low CIBIL score credit. It means that the individual has fallen behind on payments and owes a loan. 
• 550-649: People in this category are deemed average and would benefit from improving their credit score.
• 650 – 749: This is considered a good credit score, and lenders will likely give loans and credit cards. Despite this, the individual will be unable to reach an agreement with the lender.
• Individuals with credit scores ranging from 750 – 900 are regarded to have outstanding credit. Individuals in this category will be offered loans and can negotiate lower interest rates and credit cards with higher incentives.

What is the Formula for Calculating a Credit Score?

Different credit bureaus — TransUnion CIBIL, Experian, and CRIF Highmark-utilise different scoring models to generate credit report data. These provide reports online to you if you want to attain a CIBIL score check through online means. These scoring models use numerous elements to generate an individual’s credit score, and the significance of each element on the final credit score differs based on the scoring model utilised. 

This is why the same person will get a different score from multiple CICs despite having the same credit history. It can display a low CIBIL score, but it no longer remains low when you put effort to increase your score. This is because credit bureaus each have the proprietary methodology employed to determine a person’s credit score and the exact breakdown.

Why is it Important to Keep a Good Credit Score?

Though credit score is not the only factor considered by lenders when giving money to a person, it is one of the first factors considered by lenders when reviewing loan applications. A low CIBIL score impacts negatively on your credit report. So, maintaining a good credit score has various advantages. CIBIL score check can be done online to know your scores, and some of the benefits of good credit scores are as follows:

• A high credit score implies good credit behaviour, higher creditworthiness, and lower risk for the lender, which increases the likelihood of your loan application getting granted.
• Loans are approved quickly and easily. 
• Pre-approved loans are available.
• A high credit score allows you to obtain credit on more favourable terms. You can negotiate better and obtain credit at cheaper interest rates for the required quantity and tenure.
• Apply for credit cards that offer better rewards and features.
• Increase your credit card limit.
• Receive a reduction in processing fees and other costs.

What is the Importance of Checking Your CIBIL Score Regularly?

As previously said, the CIBIL score meaning provides the financial lender with the first image of your loan repayment habit. This is why it is advised to check your credit score. The following are the areas where the CIBIL score is most important:

Interest Rate

Individuals with a higher credit score typically receive a reduced interest rate from banks and financial organisations.

Credit Approval

People with strong credit are more likely to be approved for credit cards and loans than those with terrible or low credit. Those with credit scores greater than 750 have a better chance of getting their loan applications approved quickly.

Credit Card Sorts

Those with good credit score receive a wider range of credit card offers as well as different types of credit cards from various financial institutions and banks. On the other side, those with a low score are not eligible for this service.

How to Get a Free CIBIL Score From the Official Website?

As per RBI  regulation, all organisations that supply credit information in India, such as Trans- Union CIBIL Limited, can issue one free credit report each calendar year upon the individual’s request. This report includes a credit score and other information. The following will help you conduct a CIBIL score  check online for free:

• Go to the official site of the Trans-Union CIBIL Score and click the link for a free credit score.
• To create a CIBIL account, one must give personal information such as his or her name, phone number, email address, and so on.
• To verify one’s identity, fill out the form with the following information: gender, date of birth, identification proof number, aadhar, PAN and postal address.
• Once you’ve finished filling out the form, accept the conditions and terms. The website will now include the credit score in the credit information report.

When you Apply for a Loan, What Should You Do to Maintain Your Credit Score?

Following the instructions below will assist you in maintaining or improving your low CIBIL score:

• Keep an eye on your credit utilisation ratio. Keep your credit card balances between 15 percent and 25 percent of your complete available credit.
• Pay your bills on time, and if you must be late, don’t go more than 30 days.
• Don’t open a bunch of new accounts all at once or even within a year.
• If you plan to make a large purchase, such as a house or a car, that may necessitate a loan, check your credit score around six months in advance. This will give you enough time to remedy any mistakes and, if necessary, enhance your score.
• Don’t give up if you have a low credit score and problems in your credit history.
• Simply begin making better choices, and you’ll notice steady gains in your score as the negative items in your history age.

Conclusion

Realize that using credit wisely – car loans, mortgages, and so on — can improve your low CIBIL score. However, it must be used wisely. Do not take on new credit if you are in any way dubious that you can handle it. Otherwise, you’ll find yourself right back where you began. Bankruptcy can be a fresh start, an opportunity to start over and build a better, more lucrative future for yourself. Consider it an opportunity to learn from your mistakes and make better financial decisions every day.

FAQ