We live in a world where the needs surpass the capability at any point. Towards that multiple banks and Non-Banking Financial Company (NBFC) help in providing financial support towards meeting any of the needs — be it education or a home or even a loan towards a vacation, etc.
However, most of the banks predominantly use the Credit Bureau score along with alternate data to assess the credit behaviour of an individual. Herein lies the importance of credit bureau score.
In India, there are 4 credit bureau scores — CIBIL, Experian, Equifax and CRIF High Mark. The credit scores of these 4 bureaus is equally important as different banks may use different bureau scores to make an assessment.
Any black mark in these bureau scores will have a long-term impact on your credit score. It is expected to take minimum of 7 years of good credit behaviour to fix a default entry. For fixing up the credit scores because of minor delays, it generally takes around 6–8 months to get to a stable state. To be loan-eligible, there needs to be multiple on time transactions to build your credit score.
How to build a good credit score?
There are many ways by which one can build a good credit score. They are:
1. Pay EMIs on time: This is one of the most important parameters on which the credit score depends on heavily. On time payments for the EMIs provides exceptional boost to your credit scores across all the bureaus.
2. Do not apply for multiple loans at a time: Requesting for multiple loans which is reflected in the multiple enquiries for the customers is one of the other parameters which indicates credit hungry behaviour and hence is penalized by the credit bureaus.
3. Try to avail multiple sequential loans: Avail multiple loans, one at a time and pay back to increase the number of accounts that is reported to the credit bureaus. This can provide multiple data points to the credit bureaus to validate your credit worthiness and hence can enhance your credit score.
4. Review your credit scores periodically: Have a good control on your credit scores and review them once every 6 months to ensure that you are not shocked by reduction of your credit scores by any of the banks or NBFCs.
Having said this, the main way to build a good credit score is a disciplined approach towards taking loans and paying them on time. There is NOTHING that can be a substitute for this.
How to fix a delay or a default in Older loans?
There can be two types of repairs that can be done for the credit scores:
1. Minor issues: Minor delays in payments of EMIs comprise of these types of issues. These types of issues can be fixed easily by paying back the EMIs on time for a period of 6–8 months.
2. Major issues: These include multiple delays across one or more accounts. This can also include defaults on 1 or more accounts. Depending on the severity of the situation, this can take anything between 7–10 years. Towards this, there are 2 options that can be considered:
a. Repay any of the subsequent loans on time to ensure that the credit scores do not suffer more.
b. If you have defaulted on a loan, try to clear it out so that your account status moves from “Written Off” or “Settled” to “Closed” status.
What are your options if you are not able to repay your loans?
The two main tools that you have in case you are not able to pay your loans are:
1. Discuss your options with the lender towards loan restructure. Restructuring provides you with flexibility to pay your loans with reduced EMI on time. However, you need to ensure that once you restructure your loan, you stick to your words so that the lender does not blacklist you in their customer database.
2. Be in touch with your lender and communicate your situation. This helps all the time as the lender will also have trust in you even if you have delays in your behaviour. If you are not receiving the calls or blocking the calls, then the banks generally loose trust and hence are a lot less flexible with these types of customers.
