Are you looking forward to getting a loan? You know it is a long process involving many procedural formalities. The chances of rejection are already getting on your nerves then. Well, it is not so nightmarish if you know the right process.
This article deals with the factors that push your name to the defaulter’s list and how to avoid it. Before discussing the methods, let us look at some of the factors such as low CIBIL score, multiple applications and many more that lead us to become a defaulter so that we can be cautioned.
What are the Reasons for Becoming a Defaulter?
Late payment harms your credit score as the major chunk of your score depends on payment history only. If you are deliberately not making a payment, you will be termed a willful defaulter, thereby leading to a bad CIBIL report.
Application for several cards at the same time also affects the credit score. This makes you appear impulsive for credit and lower your chances of getting approvals.
Not having a healthy credit mix also affects the score. Your credit duration is also an indicator of your credit health. The longer you hold them without repayment, the more prone you will be listed as a high-risk borrower.
Not having a healthy credit mix also affects the score. Your credit duration is also an indicator of your credit health. The longer you hold them without repayment, the more prone you will be listed as a high-risk borrower.
When you misuse the borrowed funds for purposes other than stated, you become a willful defaulter.
Now that we know what makes us a defaulter let us look at the guaranteed methods that can keep us out of the list.
How to Improve your Score and Not be Featured as a CIBIL Defaulter?
- Make sure you set reminders for your EMI payments and finish them off on time. If there are frequent delays, your score will be reduced, and you may have to pay the penalty. If possible, request deferring EMI for a few months.
- Based on your expenses, customize your credit card limit. For example, you may opt to increase the limit instead of reaching the limit more often and failing to meet them on time.
- Do not go for more loans simultaneously as it becomes challenging to repay everything together. Instead, make it a habit to repay one before opting for another so that you won’t be left with a bad CIBIL report.
- Choose different mixes of credit for your loans, and this helps create a good credit history. In addition, this can help you land better interest rates when you apply for a loan.
- Talk to the bank and try to extend your loan period. This will help you gain time and thus improve your credit score.
Why do You Need to Have a Good Score and to Maintain a Clean Sheet?
Good scores come with a host of benefits. A Low CIBIL score has some disadvantages on your financial profile. You don’t have to prove anything more as your credit score speaks for you. With high scores and a good credit report, the lenders and banks know that you are not a defaulter and will be willing to provide you with a loan.
Though you can get an instant loan without CIBIL, it is not so easy. You may apply for loans against pledging your property or any collateral. So, the below pointers will prove to be beneficial when you have a good score during your CIBIL score check.
- Easy eligibility to loans
- Easy credit card
- Low-interest rates
- Credit card limits
- Easy loan approvals
What Should You do to Have a Clean Sheet in Your Credit History?
The primary thing that lenders look for is your creditworthiness. Just like your physical health, your credit health is also essential. You will be provided with a loan only when you can prove yourself trustworthy. For this, the simple thing required is your CIBIL score. You can also obtain a free CIBIL report to have your CIBIL score check done. When you try and maintain a high score without any defaults, the chances of getting credit becomes easier. The chances of getting a loan become difficult with a low CIBIL score. Don’t worry if you are struggling with a bad CIBIL report presently.
You can get it sorted out by practicing simple steps, and these have been laid out below:
- Ensure timely payments
- Develop a healthy credit mix
- Check your credit report regularly
- Set a credit card limit
What does the CIBIL Score Mean?
This is a credit score given in numerical terms to reflect the creditworthiness of a consumer. It is generally a 3-digit score. This score is based on the credit history of the individual that is found in CIBIL reports. This is also called a CIR, Credit Information Report. You can now have your CIBIL score check done online for free.
CIBIL score ranges from 300-900, with 300 being the lowest score. Financial data of the past 6 months are collated for this purpose. It is generally arrived at after considering the record of payments, settlements done previously, amount of loans held and its types (secured or unsecured), any delay in making repayments previously, etc. This makes it clear that you should have been maintaining a good credit history always.
What is the Calculation Bifurcation of Credit Score?
Several factors go into the calculation of your CIBIL score. Classifying it based on percentage allotments, the following can be a good guide.
- Credit history has a 30% weightage in the calculation.
- Credit Utilization has a 25% bearing.
- Credit mix and duration have a weightage of 25%.
- The balance of 20% goes into factors like the number of applications you have made in the past.
Your repayment history will speak for your credit standing. The more you default, the more negatively impacted you become. Also, making multiple inquiries with the lender does not present a good image of you and makes them sceptical. The amount of credit you utilize should be less than 30% so that you are in the good books of the lenders.
What do Different Score Ranges Mean?
When you conduct a CIBIL score check online, you will arrive at the following ranges.
| Range | Comment |
| NA/NH | If you don’t use your credit card or haven’t taken a loan, your score would be Not Applicable or No History. |
| 350-549 | This is a bad score implying that you are a probable defaulter and the risk of lending to you is on the higher side. |
| 550-649 | This is a fair score, but only certain lenders are ready to accept this range. It indicates that you aren’t strong enough to repay dues on time. |
| 650-749 | This score is good enough for a lender, but you must try and improve it further to be on the better edge during interest rate negotiations. |
| 750-900 | It displays an excellent credit score and timely repayment history. |
What are the Means to Avail Free CIBIL Report?
The process is straightforward. Just by following the step-by-step instructions, you can know your CIBIL score for free. You can avail the CIBIL score check facility on the app now.
- First, go to the CIBIL website.
- Create your account by choosing a unique username and password. You will be required to enter your name, email Id, and mobile number to create an account. Save the details so that you can access the website whenever you need.
- Furnish all details requested on the next page, like Date of Birth, Address proof, and Id proof.
- Keep all your loan account details ready for quick authentication.
- Request an OTP through which you can authenticate and verify your details.
Is It Possible to Get a High Score on CIBIL?
Yes, of course! A score of 750-900 is considered an excellent score whereby the chances of getting credit are high. But if you are trying to reach this and are some 250 points away, you can easily get through by mainly following what has been mentioned before.
Some Negative Impacts on Your Score are Due to:
- A large number of unsecured loans.
- More than 40% of a credit utilization ratio.
- Not reading your reports to note the errors.
- Even if you found one, not disputing them for a long time.
- Becoming a defaulter by requesting more time for repayments.
- Closing down old credit cards which have your credit history.
- Maintaining only a single type of loan without a judicious mix.
- Irregular payments in terms of EMIs.
From the above, you know what makes you a defaulter and what helps you come out of that list. It is easier for you if you make it a habit to have a good credit history. Anybody would require a loan or credit as they cannot always have money readily available. So it is not bad to take a loan. What is important is your working towards repaying it on time. Never ignore this, as it can help you in the long run. Always try to maintain a higher range score and get through the loan process hassle-free.
When there is a problem brewing, and you know you may not make payments, try your best not to appear on the defaulter’s list. This you could do by having a talk with your lender and making them understand to get a viable solution. Though not easy, it may be feasible if you have had a good credit standing in the past. This will help you avoid any legal consequences too.
FAQ
Why should I check my CIBIL Score?
When you are looking to get through a loan application process, your creditworthiness speaks for you. Conducting a CIBIL score check will let you know how far or near you are in processing your loan. A higher score attracts the lenders in favour of you. Also, every bank is interested in seeing your CIBIL reports before sanctioning a loan, which is the norm.
Can I check my CIBIL score online?
Yes, you can with 4 simple steps. Here’s what you need to do:
– Login to the CIBIL website and click on the “Know your Score” link.
– Fill up the form with all the necessary details like name, address, date of birth, id, loan history, etc.
– Choose from multiple options of payment of Rs.470 to CIBIL.
– On successful payment, authentication is required where you need to answer 3 out of 5 questions correctly. Once done, your report will be mailed to you in 24 hours.
Can I get loans even after being a CIBIL defaulter?
Yes, it is possible. Despite being a CIBIL defaulter, you may apply to get loans. You can get a secured or collateral loan by pledging any assets like shares, Fds, or gold. If your spouse has a good credit score, you can easily get through as a co-applicant. Alternatively, you can get a loan if the lender is satisfied with the creditworthiness of your guarantor.
What if I have a low CIBIL score?
A low CIBIL score can hamper your chances of getting a loan as it displays a bad CIBIL report. This is because lenders look for your repayment capacity when issuing a loan.
How to improve my credit score in a year?
Make timely payments. Limit your credit usage to not more than 50% of your card limit. Also, try to maintain discipline in repayments before they become overdue.
Can CIBIL inquiries lower my credit score?
You need the latest updated credit score to submit to lenders. So requesting one doesn’t speak badly for you. But, if you are repeatedly making inquiries within a short span, this is sure to affect your scores. Lenders will believe that you are always on the lookout to borrow, which implies an unhealthy practice. So make sure you do not go overboard and limit the number of inquiries for a particular period.
