How to Rebuild Your CIBIL Score After a Payment Default?

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How to Improve Your CIBIL Score After Payment Default_WC

4 min 29 Mar 2024

Highlights:

Tips to Improve the CIBIL Score After Default
What is a Payment Default?
Tips to Improve Your CIBIL Score After Default

Borrowers who have availed of a Home Loan or any other loan have to repay it through EMIs. A payment default occurs when a borrower fails to repay the EMI as per the initial agreement. Missing several EMIs in a row or consecutively for weeks and months is known as loan default and can cause a decline in your credit score. A decrease in the credit score can reduce one’s chances of loan approval as well as securing a loan on beneficial terms and conditions. If you have defaulted on a loan, which has led to a decrease in your credit score, you can still improve it by practising financial diligence. Read on to know how.

Tips to Improve the CIBIL Score After Payment Default

Pay EMI Bills on Time

Paying bills on time significantly improves your credit score because payment history is a major factor in credit scoring models. Consistently meeting payment deadlines demonstrates reliability and financial responsibility to lenders.

Maintain a Low Credit Utilisation Ratio

When borrowers keep clearing only the minimum amount due, it leads to a high credit utilisation ratio. It not only reduces your CIBIL score but also indicates that you are overly reliant on credit. Maintaining a low credit utilisation ratio, ideally below 30%, helps improve your credit score by demonstrating responsible credit management.

Also Read: What is Credit Utilisation Ratio and How Can You Improve It?

Maintain a Healthy Mix of Credit

Borrowers trying to improve their CIBIL score after loan default should maintain a healthy mix of different types of credits. Borrowers should have both secured and unsecured loans as this convinces lenders of a borrower’s ability to repay all kinds of loans.

Also Read: Credit Mix: Different Types of Credit that Boost Your Credit Score

Avoid Applying for Multiple Loans Simultaneously

If a borrower’s CIBIL score has gone down due to a loan default, they should avoid applying for new credits simultaneously. Every time a borrower applies for a loan, their lender conducts an enquiry. This enquiry gets registered as a hard enquiry. Too many hard enquiries can reduce a person’s credit score. Therefore, borrowers should apply for credits only when necessary.

Check Your Credit Report Regularly

Check your credit report regularly to track factors negatively impacting your score; sometimes incorrect information on the credit report may cause your CIBIL score to go down. Thus, borrowers should check their credit reports for errors and dispute them immediately.

If you want to improve your CIBIL score, you can practice the strategies given above. Note that improving your credit score takes time, so practicing financial discipline diligently is essential.

What is a Good CIBIL Score?

A CIBIL score is a three-digit number that ranges from 300 to 900. The higher the score, the better the chances of getting approved for a loan. Credit agencies determine an individual's CIBIL score by evaluating various factors, including past repayment behaviour, credit history, and current debt-to-income ratio. This score helps lenders assess the risk associated with lending funds to borrowers.

Typically, lenders prefer extending loans to borrowers who have a CIBIL score of 750 or above. Here’s what each credit score range means to the lender:

Credit Score	Rating
800 to 900	Excellent
750 to 800	Very Good
625 to 750	Fair
625 and below	Low

How long does it take to improve credit score?_FAQs_WC

FAQs

Improving the CIBIL score can take a few months. Practising healthy financial habits can help you improve your credit score.

No, the loan default history stays on a borrower’s credit report for 6 years and hence cannot be removed. However, in case it has appeared on the report by mistake, the borrower can write to the concerned credit information bureau and request them to fix the error.

Improving credit scores takes time. You can improve your credit score by consistently paying your EMIs and credit card bills on time, minimising new credit applications, reducing your debt-to-income ratio, keeping a low credit utilisation ratio, and maintaining a healthy mix of credit types.

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