Days Past Due (DPD) in CIBIL Report

CIBIL Report is X Ray of one’s credit health. It is must that credit health should in good shape. A good credit health in turn is critical for your personal finance / financial health. For example, if you have low CIBIL score in CIBIL report then you cannot avail Home Loan. What it implies is that you cannot own your dream home till you save enough to buy house without Home Loan. This scenario seems impossible because of high cost. As we know that any default in payment impacts your CIBIL score negatively. Sometimes through intelligent and timely intervention, we can control the damage to CIBIL Report without much efforts. One such intervention is managing Days Past Due or DPD entries in CIBIL Report.

What is Days Past Due in CIBIL Report?

In CIBIL report, you must have observed entries like 000 or STD under each credit account reported to CIBIL by the financial institutions. These entries are recorded in 2 dimensional matrix o fMonth and Year for each credit account. In layman terms, Days Past Due or DPD means for how many days the payment was delayed for that particular month. In following example, entry for April’2010 is showing DPD of 025 which implies that payment for April’2010 was delayed by 25 days from customers end. In financial terms, Days Past Due in CIBIL Report reflects the ability of a borrower to pay the amount due on time. Any other entry besides 000 shows that borrower is not able to manage his/her finances well which impact CIBIL report negatively.

Days Past Due (DPD)

In the above example, except for 000 or XXX other entries like 025 or STD will impact your CIBIL report negatively. There is a common misconception that entry of STD is OK, which may or may not be true. STD means Payment is cleared within standard period of 90 days which may imply there was delay in payment. Some lenders ignore STD entries but few may consider it as delay in payment. As per CIBIL, STD entries in CIBIL report should not be viewed negatively. XXX means that data for that particular month is not reported by the financial institution which is perfectly OK. Other possible entries in this table are

SUB (Sub Standard): Account is NPA for upto 12 months. Account is declared NPA (Non Performing Asset) if payment is not cleared for more than 90 days from payment due date.

DBT (Doubtful): Account is Sub Standard for 12 months

LSS (Loss): Lender has declared and booked LOSS. Account is tagged as uncollectible i.e. payment cannot be collected from defaulter.

Days Past Due history is available in CIBIL Report for 36 months. If the credit account is more than 36 months old then most recent 36 months details will be available in CIBIL report. In case of closed accounts, Last / Preceding 36 months entries are reported to CIBIL database.

One of the most common mistake in case of payment default is to close or settle the account. All hopes are lost and borrower stop making further payments. This situation can be avoided in most of the cases. Mr. Ravi. Last year Mr. Ravi lost his job and skipped credit card payment for 3 months. He pressed panic button as DPD entries of 90 days, 60 days etc reflected in his CIBIL report. General feeling was that all is lost. After getting new job he thought that now there is no point making past payments as he is already defaulter. Due to ignorance, Bank also pressed panic button and requested Mr. Ravi to settle the credit card amount due and close the account.

This situation could have been handled in a better way by the bank. The solution should be win-win situation for both the parties when default is due to unforeseen circumstances & not intentional.

There is another misconception that credit account details in CIBIL is maintained for 7 years but it is not 100% true. In case of payment default, the defaulter console himself that entry will be deleted after 7 years from CIBIL report. This is the biggest mistake. Fact of the matter is that credit account entry is maintained for 7 years from the date the account was last reported by the financial institution. In case of payment defaults or settlement, Banks don’t close account and keep updating on regular basis therefore this period of 7 years keeps extending with each reporting from bank. The idea is to cause maximum damage to defaulter.

If Mr Ravi would have settled his credit card account, an irreparable damage could have been done to the CIBIL report. Right step to take is to approach the bank and restructure the total credit card amount due. Bank agreed and restructured the amount due in 6 EMI’s. Bank also agreed to keep credit card active if future payments will be on time. He should also make all payments on time from date of restructuring. In this case objective to keep credit card account active was to phase out DPD entries in 36 months i.e. to completely remove DPD entries from CIBIL report. All entries from date of restructuring will be 000 as Ravi is making all the payments on time. Moreover his CIBIL Score improved drastically in last 12 months as all recent payments are on time.

By handling situation differently i.e. managing DPD entries, the damage to CIBIL Report was minimized and CIBIL Score improved at much faster pace. Whereas settlement would have caused more damage as bank could have been reported account as “SETTLED”. DPD entries against “settled” account are freezed for next 7 -10 years. Sometimes the intent of borrower is not to default intentionally but due to improper guidance & hand holding from bank, he unintentionally cause permanent damage to his CIBIL report.

It is advisable to explore all possible scenarios before opting for settlement and always regularize payment ASAP as you can in case of default. Provided the intent of borrower is not to default and commit financial fraud. You may approach bank and explain the genuine reason for default. Do remember that for bank, yours is one among lakhs of cases but for you, its your lifeline to avail future credit.
Visit - www.cibilconsultants.com
Source-secondary

Which factors make your credit report critical for loan approval?

Lenders have been using credit reports for evaluating loan applications since 5 years now. But it is only now that people are realizing the importance of being aware of their credit scores and maintaining their credit history. Analysing your credit report helps you identify the right time when you should apply for a loan in your financial life cycle thereby increasing the chances of it not being rejected. The main factors seen upon by the creditor while analysing your application are :

New credit facilities

If a creditor sees that recently you have been given a number of new credit facilities, it would indicate to your lender that in relation to your EMIs, your monthly outflows have most likely increased. Thus, it is likely to have a negative impact on your loan application.

Number of new inquiries done
Chances of getting a loan approval are most likely to suffer if you have applied for many loans at the same time in the recent past. Such behavior gives you the “credit hungry” tag by the lenders and indicates that you may be in urgent need of money. This will make creditors more cautious when they are evaluating your application.

Payment history

There are two parts to your payment history- DPD (Days past Due), and the month, year of payment of year. DPD indicated that the payment is late by how many days in that month. “000” – anything other than this would be considered negative by the creditor. Up to 36 months of this payment history is provided in this part with the most recent month shown first.

Current balances

Current balances also appear in the account(s) section. Current balances on your various loans show the depth of your debts. Sum of these current balances then helps the creditor determine your ability to take on more EMIs, in relation to your current income. Naturally, the lower is your current balance the better are your chances of getting a loan approved.

Check your CIR 4-5 times every year and make sure your collateral is accurately reflected. This will help when you are planning to apply for any credit facility/loan for a purchase in the near future. This will also help you access credit faster. High credit score is also important for getting your loan approved.

Get your loan approved by just improving your credit score.
consult credit therapists at www.cibilconsultants.com

Source: Secondary