How to Improve 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 agreed terms. Missing multiple EMIs over an extended period, such as weeks or months, is referred to as a loan default. This can negatively impact your credit score, reducing your chances of loan approval and the ability to secure favourable loan terms. However, if a loan default has caused a decline in your credit score, it is possible to rebuild it by adopting responsible financial habits. Read on to learn how you can improve your credit score effectively.

Tips to Improve the CIBIL Score after Payment Default

Pay EMIs and Bills on Time

Paying bills on time can significantly improve your credit score because payment history is a major factor in credit scoring models. Consistency in payment demonstrates reliability and financial responsibility to lenders.

Maintain a Low Credit Utilisation Ratio

When you 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

Maintaining a balanced mix of different types of credits, such as secured and unsecured loans, reflects your 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 your CIBIL score has decreased due to a loan default, you should avoid applying for new credits simultaneously. Every time you apply for a loan, the lender conducts an enquiry. This enquiry gets registered as a hard enquiry. Too many hard enquiries can reduce your credit score. Therefore, it is advisable to 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 reduce your CIBIL score. 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 practising 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 is 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.

Having a high credit score can make it easier to get loan approvals, secure lower interest rates, and access higher credit limits. It also provides leverage to negotiate favourable loan terms.

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