Credit score being affected by debt payoff plan?

When asked by lenders, “Do you have any current liabilities?”  , many borrowers are tempted to say ‘No’ or make unsubstantiated claims. Having debts could lessen your chances to possess credit at times however; it’s always wise to settle your debts timely. But many borrowers often think, “Will a debt settlement program affect my credit score?”  Let’s find out…

Impact on credit score

Settling your debt could have negative impact on your credit score. The impact depends on a number of determinants: your past and existing liabilities, the repayment history, whether or not your settled debts are presently in good standing, how much less than the original balance the debt was settled for, and many other factors.

Accounts settlement

Often settling many accounts at a time could hurt more than settling just one. While there isn’t always a hard and fast rule, generally your credit score drops less as you become more delinquent in your payments.

Negotiation with your creditor

It’s better to request your creditor ahead of time to have the account reported as paid in full, even when that is not the case. Your creditor is not compelled to do this, but it is not unheard of.

Consequences of non-settlement of your debt

In case, you do not settle debts then your score is not hurt right away. However, not settling might lead to continued late payments, default and credit collection attempts. These may end up hurting your score more in the long run. In such circumstances, debt settlement is a net positive on your score. The debt settlement remains on your credit report for seven years. If your settlement took place over seven years ago and is still showing on your report, contact the lender and the credit bureau to have the record changed and the settlement removed.

Conclusion

By nature, a debt settlement plan modifies or negates the original credit agreement. When the lender closes the account due to a modification to the original contract, other lenders are likely to take notice and be more wary about granting credit in the future.

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Source:  Secondary

Payment of credit card debts through a debt

A question often asked by borrowers is,” Should I avail personal loan or balance transfer to disentangle from credit card debt?” Short-term debt like credit card can be a convenient source of quick funding but can eventually make a deep hole in your pocket. Remember, the interest rates on credit cards are much higher than that on other loans. But weigh all your options and their consequences before you avail a personal loan or low-interest balance transfer as you run the risk of being debt trapped.

Balance transfer versus personal loans

How can one break out of this viscous circle? Either you should ask your bank or credit card issuer to lower the rate or find out whether you can afford to pay off the debt without opening any new credit accounts. Do a little homework to figure out the right option to protect your credit score and save money.

Although both are possible consolidation options for your credit card debt.

Balance transfers are performed by switching one credit balance over to another credit card, usually for a low promotional rate over a limited time period. On the contrary, personal loans are provided by banks and credit unions and can come in secured or unsecured forms. These loans typically have lower interest rates than credit cards, especially if you secure the loan by pledging an asset, such as your car as collateral.

Selecting which option depends on various aspects. For example, how your debt is currently distributed might limit your options. Even though many credit card issuers allow you to transfer over balances from multiple cards into your new card, not all do. On the other hand, a personal loan is probably the cheaper option.

You might be not found it suitable to pledge collateral against a possible secured personal loan. If you default on your credit card debt, it’s unlikely that the card issuer will sue you and comes after your assets. That changes when you open a secured personal loan; the company does take the asset to recoup its loan if you default.

Whether a personal loan or a balance transfer, both categories are likely to negatively impact your credit score, even if you never miss any payments.
Visit: www.cibilconsultants.com
Source Secondary

Is creditworthiness affected by cosigning of loan?

Being a co-signer to a loan is not at all similar to giving a personal reference….it could have much deeper implications for your financial health. Before you say yes to your close friend or relative, know about the obligations involved.

Before you co-sign

Cosigning for a loan simply means that you are vouching for the fact that the borrower will repay the loan if he or she defaults, you are going to make that repayment yourself! So think about it. No matter how close a friend or relative the borrower is, and no matter how credit worthy you think they are, there is always a chance that they may lose their job or their ability to work or run up against some life-threatening situation that takes them far away, So, only if you have the ability and the inclination to make a repayment on behalf of the borrower, go ahead and sign on the dotted line as a co-signer.

Effect on your credit score

Cosigning for a loan does not affect a credit score unless the other person defaults on the loan and the co-signer does not pay it back. When someone needs a co-signer, it is usually because the person does not have the credit score necessary to get the loan. This means either that the person has been irresponsible with credit in the recent past or that has little to no credit history. Either way, a co-signer is promising responsibility for the debt if the person defaults. If the item is a very high-value item, such as a new car or a house, the co-signer can fall into debt very quickly.

If the original borrower defaults, the lender looks to the co-signer to take over the debt. If the co-signer cannot afford it or does not continue paying the debt for any reason, then the lender will send it to collections just as if the debt was incurred by the co-signer. At that time, the collection agency begins collection activities that can include obtaining a judgement and putting the debt on the co-signer’s credit report, which drastically reduces the co-signer’s credit score and ability to obtain new credit.

If there is a charge-off, collection and judgement, then a co-signer might be looking at up to three new negative accounts on his or her credit report from one defaulted account. For these reasons, it is important to be careful about co-signing on a loan for someone else unless the co-signer knows that the borrower has the ability and willingness to pay the money back.
Visit: www.cibilconsultants.com
Source: Secondary

3 things to look for in your Cibil credit report

You are advised to check your Cibil report every year. Just like one would take a annual health check up to ensure all parameters are within the normal range and no red flags are popping up, so also one should check the CIBIL report annually i.e. do a financial annual check up.

There are no reporting errors from the lender

You should check your Cibil credit report at least once a year to make sure there are no errors that could keep you from getting credit or best available terms on a loan. You should also check your report before making a major purchase that would involve a loan, such as a house or a car.

While sending information to the credit bureau the lender or the bank could have made some errors in reporting your credit transactions. The first step is to find the errors by actually reading the report and not tossing it in a file after reading the Cibil score. When Lata got hold of her Cibil report and read it she saw it still showed an a outstanding amount of a credit card payment, which had expired and surrendered over 2 years ago. This wrong information was greatly responsible for lowering her Cibil credit score. So if you find mistakes, the immediate action should be to fill out the dispute form for the credit reporting bureau. If the error is actually with the creditor who reported the account, you may also need to write a letter to the creditor or alternatively raise the dispute with Credit Bureau for correction. Maintaining a high Cibil score is essential to a healthy financial future.

Is your identity stolen?

Check your report for any credit applications/enquiries that have arisen there are not made by you.  For instance, if you see a couple of home loan application in your Cibil report that you have not made, it can be a sure sign of identity theft. Look out for signs of identity theft. Alerts for possible fraud include:

• Loan accounts that you have not opened
• Credit inquiries not made by you
• Any late payments or defaults that were not made by you
• Address and Identity information which are not yours
• Phone number reported which you have never used

Incase you suspect an identity theft, immediately report any suspicious information or activity to the credit bureau that issued the Cibil report and to your banks too.

Account information

A large bulk of the information in the Cibil report is your account information - a list of your loans and credit card accounts. This is a good time to review your accounts. You can cross check the various accounts, the credit limit, current balance and payment history. Make a note of accounts that were closed or made inactive by the bank and those that have late payments or negative remarks associated with it. See which ones are active and if you would like to consolidate any of them, organise paperwork in the accounts and in general do the financial housekeeping we tend to postpone.

Source-secondary

Is Your Home a Collateral for Other Loans?

Collateral means to pledge an asset as a security against repayment of a loan. A collateral can be forfeited if there is a default on the loan. When you take Home Loan, you pledge your Home as a collateral for repayment of a Home Loan. But what if bank say that besides Home Loan, you have to give your Home as a collateral for any other loan or borrowing from the bank. On top of it, you also provide the commitment that this clause will cover all the past, present or any future borrowings from the Bank. Sounds Scary !!! But it is TRUE. Knowingly or Unknowingly, whenever you avail Home Loan, under Home Loan Agreement you also agree to clause “Indebtedness of the Borrower“. This is also known as Cross Collateralisation. By agreeing to this cause, you give your Home as a collateral for other loans or borrowings from the bank. Not all Home Loan Providers include this clause, but experts observed this clause in Home Loan Agreement of most of the Banks.

Ref to the sample copy of Home Loan Agreement of an Indian bank available online. Refer Article 1, clause 1.1, sub-clause “m” on page no 4. The definition is as follows

“Indebtedness of the Borrower” means any indebtedness of the Borrower to the Bank at any time for and in respect of monies borrowed, contracted or raised (whether or not for cash consideration) or liabilities contracted by whatever means (including under guarantees, indemnities, acceptance, bond, credits, deposits, hire purchase and leasing by the Borrower or by a person or entity related to or connected with the Borrower); and shall also be deemed to include any indebtedness of any associate or affiliate of the Borrower or any entity related to or connected with the Borrower, towards the Bank or any associates or affiliates of the Bank.”

To understand, let’s take an example of one lady. Her husband expired 4 years ago which put the entire family into financial problem. She was serving Home Loan from her salary. For her daughter’s education, she took the personal loan from the bank. Her Home Loan provider “Bank” happily approved the personal loan without any hassles. As her Mother in law is Class I legal heir of her husband’s wealth therefore under family settlement it was decided to sell the house. The proceeds will be divided equally between her and her Mother in Law. Recently, she closed the Home Loan but to her surprise Bank refused to issue NOC against Home Loan. Without NOC, she cannot sell the property. Bank put a condition to clear Personal Loan before they issue NOC for Home Loan. In short, Bank revoked Indebtedness of the Borrower clause in the Home Loan Agreement. In laymen terms, besides home loan her home is also a collateral for Personal Loan without her knowledge. Legally, the Home Loan Agreement is signed by her therefore she cannot claim ignorance.

Implications of Home as Collateral for Other Loans:

1. Indebtedness of the Borrower usually covers all loans/borrowing of a borrower i.e. Past, Present & Future from the bank.

2. Your Home will be collateral till you clear all the balance outstanding against all the loans with the banks.

3. The bank may include the clause to cover its associates, affiliates or subsidiaries under this clause. What it implies is that suppose you availed Home Loan from Bank A. Now, you availed Consumer Loan from ABC Finance Limited. ABC Finance Limited is a subsidiary of Bank A. In this case, your Home will also act as a collateral for your Consumer Loan.

4. Though you are securing your unsecured loans like Personal Loan, Consumer Loan etc by giving your Home as a Collateral. Unfortunately, you are paying higher interest rate for unsecured Loans. Normally loans which are backed by collateral are secured loans and charged at lower Interest Rate.

5. Bank reserve right to set off any amount against other borrowings without any intimation and consent of the borrower. For example, person defaulted on the credit card in past. It was reflecting in his CIBIL score also. Both credit card and Home Loan was availed from the same bank. Now the bank was smart enough and adjusted few Home Loan Installments against the credit card default. Normally, the borrower doesn’t check Home Loan statement but while going through some other details. As the balance outstanding against credit card was cleared willingly or unwillingly him. When we requested to update the same in CIBIL. Bank replied that since the account is closed therefore Bank cannot update the same in CIBIL. On raising the dispute, Bank referred the relevant clause in Home Loan Agreement.

6. Bank also reserves the right to encash PDC’s (Post Dated Cheques) deposited for availing Home Loan for other loans with the bank.

In short, by availing Home Loan from the bank you are giving your Home as security or collateral for all the Borrowings/Cross Default. All the amounts due to the bank or its affiliates/associates/Subsidiary will be due under Home Loan Agreement. It will be backed by Home as a collateral.

How to Safeguard your Financial Interests?

Though Home Loan agreement is standard format and bank will not exclude clause related to Indebtedness of the Borrower for one borrower. It is important to follow these points to safeguard your financial interests.

1. Read the Home Loan Agreement Carefully: You should read the document before signing. If you don’t understand certain clauses then it is always advisable to take professional help. In case, you have any apprehensions about the clause related to Indebtedness of the Borrower i.e. giving your Home as collateral for other loans then check other options. Before you apply for Home Loan, you should ask for a sample copy of Home Loan Agreement. If you will back out at later stage then it may impact your CIBIL Score.

2. Selection of Home Loan Provider: You should select your Home Loan provider carefully. Even if you have agreed to the inclusion of Indebtedness of the Borrower clause then you should ensure that you don’t have any existing financial relationship with the bank. In future also you should not avail any financial products especially loans, credit card, overdraft etc from the same bank.

3. Check your Statements Regularly: Many people have a habit of not going through the monthly/quarterly statements, but it is important to check them as and when you will receive. For any suspicious transaction, you should immediately bring to the notice of the bank.
Visit: www.cibilconsultants.com
Source: Secondary

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

How to Cancel Credit Card?

In Banking Sector, there is no standard process defined to Cancel Credit Card. As a result, most of the times credit card user end up with low CIBIL score due to unintentional payment default. Many suffered in past, thankfully some noticed before it impacted their CIBIL Score. Credit Card is both a blessing and a curse depending on how you use it. Some people have habit to experiment with credit cards. It is most dangerous game. They apply for new credit card when they receive new offers and cancel credit cards which are not in use. This habit can cost you heavily if process to cancel credit card is not followed properly. Daily people receive multiple cases wherein my clients suffered after few years because process to cancel credit card was not followed properly. Banks demand huge amount as credit card dues along with penalty and fine. Though customer claim that they placed cancellation request but in the absence of any written proof, legal stand of customer is on weak front. In this post, lets check out the fool proof method to Cancel Credit Card

Step 1: Decision to cancel credit card:  Until and unless you have compelling reason to cancel credit card, it should be not be cancelled. Temptation to opt for new credit card with mouth watering offers should be avoided. It shows credit hungry behavior. People should not opt for more than 2 credit cards. Lastly, before you cancel credit card, please give a thought that now it is very difficult to get new credit card. Once decided, you should not revisit your decision based on offers by bank to retain credit card as it create confusion in entire process. Bank may offer 2000 loyalty points or offer freebies at later stages to convince you to retain the credit card. You should simply stick to your decision.  From this point onwards you should stop using credit card which you are planning to cancel.

Step 2: Cancel ECS / Auto Debit Instructions linked to Credit Card: This is one of the most common mistake. Sometimes under ignorance we are not aware or keep track of ECS / Auto Debit mandates linked to credit card. This is especially true for utility bills, insurance premium etc. Before initiating cancellation process, you should pull out last 3 months credit card bills and check for all such transactions. Now you should cancel all such ECS and Auto Debit Mandates. Cancellation of these mandates take few days time. After placing cancellation request, ideally you should wait for one credit card billing cycle to check whether all the mandates are cancelled or not.

Step 3: Amount Due as on Date: After step 2, you can call the helpline of bank to check what is the current amount due (as on date). Inform them that you would like to cancel the credit card and clear balance outstanding as on date. Common mistake from customer’s end is that they clear amount due as per last billing cycle but un-billed amount is pending/unpaid. It is advisable to check balance outstanding as on date.

Step 4: Make Payment: You should clear the complete balance outstanding / amount due as on date. After making payment, wait for few days to reflect it in your credit card statement. If payment is made through net banking then it will be credited in credit card account next day. In case of cheque payment, it may take upto 10 days.

Step 5: Place cancellation request through Credit Card Helpline: After you cleared amount due against credit card and your credit card billed and un-billed outstanding is NIL you are ready for golden moment. You should call helpline no of bank to place request for credit card cancellation. Don’t forget to take the reference no of your request to cancel credit card. For most of the credit card holders, process ends here i.e. they simply place request to cancel credit card and there is no further action.

Step 6: Submit Physical Request at nearest branch: As a next step, you must submit physical copy of your request to cancel credit card at nearest branch of the bank. In many cases, bank branch refuse to accept the application but please note that bank cannot refuse. If bank refuse, you can request bank employee to mention on application that he/she cannot accept this request. Do mention in physical application / request that you have already placed request through helpline and mention reference no shared by call centre. You can also mention that you are destroying the credit card from your end. Don’t forget to take acknowledgement from bank employee along with bank seal, employee name, employee id, signature and date.

Step 7: Confirmation Call from Bank: It is very critical that your latest mobile no is updated in bank’s record. Reason being, bank will give confirmation call on your mobile no after receiving cancellation request. If you are not reachable or mobile no is wrong then bank may reject the request without your knowledge. During confirmation call bank may offer freebies to retain the credit card but you simply reject. Some banks give 2-3 confirmation calls. During 1st confirmation call you may check how many days bank will take to cancel credit card, Issue NOC and update in CIBIL database. Normally credit card is cancelled immediately after confirmation call.

Step 8: NOC cum No Due Certificate: It is absolutely necessary to obtain NOC from bank against Credit Card. This is the only proof that you have actually closed credit card. One of the case, that man cancelled credit card in 2008 & took NOC from bank. After few years when he checked his CIBIL Score he was shocked to observe balance of Rs 78000 against the credit card. Thankfully he had NOC from bank. Immediately after his complaint, CIBIL record was cleared in record time of 7 working days without any questions asked.

Step 9: Update CIBIL Database: Normally banks update CIBIL database within 45 – 60 days from date of cancellation of credit card. To be on safer side, you consider 60 days from date of NOC. After 60 days, its result time i.e. whether your succeeded in exam to cancel credit card or not. You can pull out your CIBIL report to check status of credit card. It should be closed in CIBIL database with NIL outstanding.

With this the process to cancel credit card is completed and you can sign a relief. Any default on credit card impacts CIBIL report badly therefore it is very critical that process to cancel credit card should be taken seriously by the customer. You might have observed that it may take upto 6 months to cancel credit card considering the no of steps involved. As mentioned in the beginning that cancellation of credit card should be the last option. In short, cancel only if you are facing operational problems with banks which cannot be resolved.
Visit- www.cibilconsultants.com

Source-secondary

When to check your credit report and improve your credit score?

Whether you are planning to buy a home, a car or even a new credit card, your credit score has immense affect on your loan processing. A credit score is a 3 digit number that shows numeric summary of your credit health. Such score is derived by credit bureaus by analyzing your credit history. The score usually ranges from 300 to 900 points and the higher score suggests more chance of getting approval of your loans. If you are in dilemma to find how to improve credit score, following tips may help you:

ñ      The first and foremost easy action to improve your credit score is to pay off all your bills on time and pay regular installments on your loan default. Even, if your credit score is trembling, you just follow the technique of paying all the bills on time. You need to maintain no late payment status for at-least seven years.

ñ      It is important to put a limit on your credit card use and utilize it only for certain ways. Your credit score would be on the higher side if you will make less use of credit cards as well as will avoid using too many credit cards. The ideal would to be use between 10% and 20% or less of the total credit available.

If you don’t have any idea how to get credit report and improve your credit score, it is better to take help of professional credit agencies. These agencies become your friend and guide in showing you the right way to improve your credit score.
Visit www.cibilconsultants.com and book an appointment now !

Source: Secondary

Information your Cibil report contains !

In India, very few people know about CIBIL. CIBIL maintains all the data regarding any credit taken by any individual in his entire life cycle. It provides a report known as credit report which contains all the detail regarding all the accounts taken by the individual. This report is very important because it shows our past, future and present of credit history.

All banks refer to credit score of every loan applicant as part of due diligence process. It is an important step in loan due diligence process as it gives a fair idea of the credit-worthiness of every individual. In very simple terms - CIBIL Score determines the probability of a default of a customer. A high CIBIL credit score demonstrates financial discipline and a lower likelihood of default.

Credit Information Report (CIR) contains the basic information about your credit history and any other financial related information that is available from CIBIL.

Personal information: Your name and details of ID proofs are shown here. Your PAN, Passport, Drivers License, Voter ID etc. appear in this section.

Contact information: Your recent address, phone number and email address given by you to the banks and lenders will be shown here. The address category tells whether it is permanent or temporary and official or residential.

Employment information: This section shows your occupation and income. The most recent information as provided by the lender for a particular credit account will be shown here.

Account information: This is the most important section of the report, which shows the details of your existing loans and other credit facilities. Along with this, the details such as name of the lender, types of credit facility, account number, account type and type of the ownership will be given here.

Get your credit report easily by visiting www.cibilconsultants.com

Source: Secondary

They check your credit score before appointing you !

If you feel your credit health is important for your potential creditors and loan providers only then you are not aware of the fact that your financial crunches can affect your job opportunities as well. Now role of credit reporting agencies have become more crucial in people's working life. Most of the reputed recruiters nowadays prefer to know about credit health of its employees before hiring them. It has been found that employees who are under financial crunches show less interest in their work and thus, their overall performance and productivity is suffered.

Credit reporting agencies collect a large amount of data in relevance to people's debts, income level, payment history and access to additional credit to calculate scores that reflect their credit health. A high credit show reflects low loan default risk. It is assumed that if a person had defaulted on his financial obligations or bankruptcy, he might repeat it in the future. On the other hand, if you have maintained healthy debt to income ratio, the chances of your future default on debt are less. Thus, your past credit record becomes a testament to your responsible management. These records are generally accessed by your prospective creditors, banks and potential employers to take decision to offer you a mortgage, credit card or a job. Most of the reputed organizations access such reports to evaluate a person's personal skills and financial condition before recruiting him for a particular job. Thus, if you want to serve good organizations, it is not enough to have educational skills, you should have skills to rectify credit and manage sound financial position to be suitable candidate for any job.

Source: Secondary

How does defaulting affect your CIBIL Score?

A loan default is basically not making the required payments on your loan to the lender. A loan default is associated with a lot of financial problems. Even if you met all the conditions of the default, your credit score will drop and you will find it hard to get another loan in the future.

There can be many reasons why an individual may have done his payments, but when a certain time passes without you making the payment, it becomes a part of your credit history and would be included in determining your credit score. When this default is added to your credit history, it stays there for 7 years thereby affecting your credit score for a long time. Therefore, it is important that your avoid turning your late payments into defaults, to not hurt your credit score.

Default can occur with all types of loan. Default in loans like home loans, auto loans can have the lender take repossession of your home or vehicle. 

Default is not the same as deferment, in deferment the payment is postponed mutually after an agreement with the lender while in default there is no agreement that you will get your payments even in the future. Default indicates to the lender that there is far more and deeper problem in the individual’s finances.

If you cannot avoid a default, you can at least reduce the impact of it. The best way to reduce a default is to contact the creditor as soon as you can. If you are late with only a few payments, you can work out some way with your lender for a payment plan. You can also consider various options for refinancing. If you can before declaring on your default, you could sell your car or house on your own or repay the lender than going to a agent. This saves the lender time and money as it is more cost-effective way.

If your debt problems are much deeper than you thought, contact our credit repairing agency at www.cibilconsultants.com , which can help you restructure your payment plans.

Source: Secondary