Break Through The Ceiling And Achieve A Beautiful Credit Rating
A score is an accurate representation of your performance in a particular area. The same holds true for your CIBIL credit score, a numeric representation of credit worthiness, that is, the level of risk you represent if a lender were to offer you a loan. A below-par CIBIL score can derail you future plans by making it difficult or even impossible for you to avail credit.
The good news, however, is that bad credit can be fixed. The following tips will help you initiate and give direction and momentum to your credit rectification plan (considering you are hundred percent committed to recovery—because without that nothing moves).
Keep an open mind
Why your credit score is what it is? Is it because of certain unavoidable personal situations in the past? Or is a poor financial decision, or a series of bad judgments, responsible?
In case of the latter, the first thing you must do is own up to your mistake. Mistakes accepted, now stop beating yourself over it; instead use your energy to get back on track. (The actual recovery steps start from the next point, but you won’t gain much out of them if you are not in the right frame of mind, so keep your focus only on recovery from now onwards—what has happened has happened. Don’t let it shape your future.)
Before you can start rectifying your credit score, you must know your current CIBIL score and have a copy of your credit report in hand. Purchase a copy from the CIBIL website by paying Rs 154. If you don’t know your current credit score, purchase it too (yes, credit report and credit score are two different documents) by paying Rs 470.
Find out the reasons for your poor credit score
The CIBIL credit report lists data; it doesn’t highlight areas where you are lacking and need improvement. Therefore, you must train yourself on how to read your CIBIL report. These three tips will prove handy:
- Check all entries for accuracy: Ensure every detail, including name, address, loan amounts, and repayment history, in the report is correct. (What you need to do in case of an inaccurate entry is discussed in the next section.)
- Make a note of DPD in every loan or credit you’ve used: Days past due, or DPD, indicates for how long a payment has been due for that particular month. For example, if for May ’15 DPD for a loan is 60, it means that the payment has been due for 60 days. Anything above “000” as a DPD value is a negative thing. The higher the DPD number, the worse its impact on the credit score.
- Check for ‘written off’ or ‘settled’ status: A ‘written off’ or ‘settled’ status indicates non-payment of loan and, in all likelihood, could be the biggest contributor to your low credit score.
Rectifying inaccurate entries
Sometimes CIBIL credit reports contain discrepancies, ranging from a spelling mistake in your name to listing of a loan that you’ve actually never taken. If you find your report has inaccurate data, fill the dispute request form on the CIBIL website to raise a dispute. A dispute is usually resolved within 30 days.
Make an action plan and follow it to a tee
Inaccuracies removed and problem areas identified, next thing you must do is make an action plan to increase your score. Think about how you can pay off the debts and outstanding amounts if you’ve them on your report. Those who have defaulted or had settled a loan in the past should work out a plan working with their lender to chalk out a strategy to clear the loan. Try as hard as you may, but without paying off your past loans, you cannot have a good score.
No one says recovery is easy. You probably will have to cut corners somewhere and show strong, unwavering financial discipline. But the effort put is worth the result, because a good credit report opens up financial opportunities that were closed to you earlier.
Once your score is back to par or above it, keep your credit utilization ratio to less than 40%, to make payments on time, and to create a loan portfolio that is a healthy mix of secured and unsecured loans. In addition to these best practices, do not apply for a new credit card or loan without giving it proper thought.
Prudent financial behavior will ensure you increase your CIBIL score and easily qualify for credit when you really need it.