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August 19, 2024
As we transition to a cashless economy, the convenience of making payments through UPI and bank transfers and the ease of online access to bank accounts have rendered cheques obsolete. The RBI’s regulation of KYC Documents has further enhanced the speed and transparency of lending. Customers’ credit transactions are promptly reported to credit rating agencies, enabling banks to verify the customer profile before extending further credit and providing a sense of security and ease.
CIBIL (Credit Bureau of India Ltd) is a pivotal player in the financial landscape, serving as the primary credit recording agency. It receives customer data from banks, NBFCs, and other lending agencies, meticulously chronicling details such as mobile number, PAN number, Aadhaar number, driving license, and other information lenders provide. This comprehensive and reliable record of your financial history is a critical factor in determining your creditworthiness.
Your CIBIL Score, a numerical representation of your creditworthiness, is a key factor in determining your Personal Loan Eligibility. CIBIL creates a report that details all loans and Credit Cards and their repayments. This report calculates a CIBIL Score ranging from 300 to 900 points. A higher Credit Score increases your chances of securing the funds you need for individual usage.
Maintaining a healthy Credit Score is not just helpful it’s crucial. A score of 720+ is mandatory to Apply for an HDFC Bank Personal Loan or an ICICI Bank Personal Loan. A lower score can limit your borrowing options, making striving for a higher Credit Score essential.
For a secured loan or a mortgage, a lower score of 700+ is acceptable. Are you alarmed that your score has fallen below the required benchmark? The following points could be the culprits.
Is there anything you’ve overlooked related to an old Credit Card or loan account? It’s common to have a pending Credit Card in your name that you don’t remember opening or a Credit Card you’ve declined. Charges for the card can add up over time and be marked as a pending account. Dealing with the issue might seem like a hassle, but ignoring it isn’t the solution because it can affect your credit rating.
Credit Card dues must be paid on the due date. Most Credit Cards, including the ICICI Bank Coral Credit Card, have a payment cycle of 30 days. If unable to pay the due amount, the option of paying a minimum of 5% must be fulfilled. Non-payment or delayed payment of a Credit Card is noted in your credit history, as are the days after payment. Non-payment for 30 days and above is a red flag that inversely affects the Credit Score.
The EMI date of your loan and Credit Card payment needs to be treated as sacred. The impact of delayed or non-payment of EMI is significant, as it can affect your credit history. If insufficient funds are in the account, the EMI will return unpaid. If there is a slip, transfer funds to your account immediately. Banks make a second attempt and present the EMI after 48 hours.
On non-payment, a message is forwarded to the customer for payment. If the instalment remains unpaid, finance charges are levied, and the delay is reported to CIBIL. The CIBIL Reports the days until the EMI is paid. A one-odd delay is acceptable, but if the customer repeatedly delays the EMI, the pattern is indicated in the record, and the score is downgraded.
Are you unable to repay your Loan instalment? Often, customers face trying times due to loss of employment or unprecedented circumstances and can fall behind on payments. The lender will contact you to remind you about the payment due. If the EMI remains unpaid, the delay is reported to CIBIL. The account is further forwarded to recovery agents to try to collect the pending dues. If the customer cannot make good the loan amount with the interest due, an offer will be made to the customer to make a settlement.
When a customer settles a debt, they pay the principal amount but waive the interest. The bank then closes the account and marks it as settled. The customer’s CIBIL Record will show the settled status with the remaining due amount. However, the customer needs to pay the entire amount owed. Settling the debt is not recommended as it can lower the CIBIL Score and impact future credit opportunities.
An unpaid loan, whether a secure loan such as a home loan, Auto Loan, Gold loan, unsecured Personal Loan, or Credit Card, will be reflected as a write-off in the CIBIL record.
Secure loans that remain unpaid for a while will cause the lender to reclaim the property or vehicle for which the mortgage has been taken. For unsecured funding, such as a Personal Loan or a Credit Card, the bank will try to reach the customer for payment if any balance is due. The days past due are regularly reported to CIBIL. Finally, the bank accepts an inability to recover the loan and reports the same as written-off or bad debt.
A Loan account that shows as a write-off in the CIBIL Record will mar the record for some time. If a customer cannot repay the loan for a valid reason, it is in the best interest to make good the amount to the lender when possible.
Choosing the right bank for a Credit Card or a Personal Loan is crucial. Applying to too many Banks is not a good idea, as each lender will send an independent enquiry to CIBIL to check the credit score and history. CIBIL, in turn, deducts 20 points for every Lender inquiry. Therefore, making careful financial decisions and choosing the right bank for your needs is essential.
Applicants with a previous default will like to try their luck with all the lenders. Contrary to expectations, when the number of Lenders is viewed in the CIBIL history, Banks are apprehensive that the customer might be taking credit from multiple Banks and will have a problem with repayment.
When Applying for a Personal Loan, go to the bank with which you have a good credit record and relationship. Or research the lender which will give you the best terms.
Managing credit is essential to maintaining a healthy credit score. Situations arise where repayments are delayed due to an emergency or financial stress if you fall short of funds, it’s a good idea to get a top-up on your existing loan or Apply for a Balance Transfer to reduce the EMI. If your score does come down, getting it back on track with a consistent strategy is possible. We at Yourloanadvisors.com are dedicated to providing our customers with solutions and guiding them to improve their credit profile.
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