CIBIL score reflects the bank’s confidence in your repayment ability. The higher the score, the easier it is to get a loan. It takes time and diligence to build it to higher levels. On the contrary, damaging the score takes only one missed payment or default. Going from 800 to 600 takes far less time than going from 600 to 800, just like going downhill vs. uphill.
Settling a debt loan can significantly impact your CIBIL Score, in undesirable ways. Although, there are several ways to bring back the score and regain your credibility as a responsible creditor. Many aspire to maintain a high CIBIL Score even after settling past the financial crisis. There are several compelling reasons individuals seek to keep their CIBIL Scores in good standing, including:
- The ability to secure favorable credit in the future.
- Access to loans with lower interest rates and better terms.
- Higher credit limits are offered by lenders.
- Approval by landlords for rental housing.
- Access to various credit card benefits, such as rewards and perks.
- Enhanced negotiating power when dealing with lenders.
RANGES OF CIBIL SCORE
CIBIL scores, also known as credit scores, typically range from 300 to 900 in India. These numbers are the measure of confidence the lender puts in you as a borrower with their money. These scores are calculated by credit bureaus based on your credit history and various factors related to your borrowing and repayment behavior. You will have a credit score even if you have never heard about it or thought about it. Each transaction you do is tracked and shared with the credit agencies and is kept on record for future referrals. Here’s a breakdown of the different score ranges and their general significance:
300 – 549: Poor Credit Score
550 – 649: Fair Credit Score
650 – 749: Good Credit Score
750 – 900: Excellent Credit Score
STEPS TO IMPROVE CIBIL SCORE AFTER SETTLEMENT
Improving your CIBIL score after settling debt is achievable through careful financial management, patience, and a strategic approach. Don’t forget, the agencies also want you as a borrower and are more than happy to help you achieve the sweet score of 800. Here are the steps to help you rebuild your credit score after a debt settlement:
- Regularly Review Your Credit Report: Obtain a copy of your credit report from a major credit bureau (CIBIL, Equifax, Experian, or CRIF High Mark).
Carefully review your credit report to ensure the settled account is correctly reported as “Settled” or “Paid.”
- Make Timely Full Payments: Pay all existing credit accounts, loans, and utility bills on time and in full. Timely payment of bills is crucial for improving your credit score. Never carry forward credit by using the partial payment feature.
- Reduce Credit Card Balances: If you don’t have a credit card, get one! It is the smartest way to buy back your credibility. Maintain low credit card balances compared to your credit limits. Aim for a credit utilization ratio below 30%. Set your spending limit much below your credit limit to achieve this and prevent overspending.
- Diversify Your Credit Portfolio: Consider obtaining a secured credit card or credit builder loan to diversify your credit profile. A variety of credit types can positively impact your score.
- Keep Older Accounts Open: Maintain older credit accounts in good standing, as they contribute positively to your credit history.
- Continuously Monitor Your Credit: Regularly review your credit report for errors or discrepancies. Check for any inaccuracies in settled accounts.
- Limit New Credit Applications: Avoid opening multiple new credit accounts in a short period, as it can negatively affect your score
Apply for new credit sparingly and only when necessary.
- Exercise Patience and Consistency: Rebuilding your credit takes time. Be patient and persistent in your efforts. Over time, the impact of settled accounts will diminish as you demonstrate responsible credit behavior. Be mindful of your spending and active with your payments.
- Seek Professional Guidance: If uncertain about the best strategies, consult with a credit counselor or a financial advisor experienced in credit repair.
- Enhance Financial Education: Invest in improving your financial knowledge and adopt responsible money management practices to prevent future credit issues.
- Stay Informed: Keep abreast of changes in credit reporting and lending practices in India to make informed financial decisions.
In conclusion, following these essential steps and maintaining a proactive approach to your financial health can help you overcome the negative consequences of debt settlement and gradually rebuild your CIBIL score. Credit agencies are not your enemies, they also want you as a customer. Rebuilding it together by following best practices will not take much time and eventually overcome the negatives in your report.
Remember, your credit score reflects your responsible financial behavior, and with determination, you can achieve a brighter financial future.
