Life after a bad credit score

30-Oct-2015 written by : FSI-Team

A low or ‘bad’ credit score need not signify the end of one’s financial dreams. With some financial discipline and patience, it is indeed possible to better your credit score.

Reasons a credit score can go ‘bad’

Sometimes, it is possible that the data contained in your credit report is inaccurate. This can happen because of incorrect information reported by a lender to the credit bureau. If this information is not rectified, chances are that your score would dip. For example, a person’s credit report shows a loan that they have not availed of – this could have occurred because of identity theft, wherein the person’s credentials are used by another individual to obtain a loan in the person’s name, using their documentation. In such a scenario, if the loan shows a default or write-off, the concerned bureau needs to be notified immediately, so as to rectify the records. Until then, the score will be low. Another reason for a score to bad is non-payment of dues. If a person has a credit card and does not pay the amount outstanding as per the payment date, it impacts the score negatively. It is not only write-offs or collections that negatively affect a score, but even delayed payments. Hence, it is imperative to clear all outstanding dues (be it on a credit card or a loan) as per the EMI date or due date.

Impact of a bad score

While a credit score is a very critical part of the loan (or card) application process, do keep in mind that it is not the sole factor that approval depends upon. In addition, parameters such as the applicant’s income, other expenses etc. are also taken into account. Let us take an example wherein a person wants to avail of a fresh line of credit; however as per the credit report the score is low. This does not mean that a lender would reject the loan application outright. There is always the possibility that the loan will be granted, although for a lower amount than the person requested for. It is also highly likely that the loan would be approved at a higher rate of interest that it would have been for someone with a better or a ‘good’ score. Hence while the loan may be granted to a person with a low score, the terms and conditions at which it may be granted may not be the most competitive.

Corrective measures that can be taken

Do remember that a low score can be bettered if you invest some time, patience and effort. While unfortunately there is no quick-fix solution, there are various options you can explore and improve your credit score. The first thing to do would be to call for a copy of your credit report. There are currently four credit bureaus in India, namely CIBIL, Equifax, Experian and CRIF High Mark. These bureaus all offer reports at a nominal price. Once you have the report, do check to ensure that all data mentioned therein is correct. Another important measure is to make payments on any outstanding debt promptly and as per the due date. If you believe that you simply forget to make payments, consider setting up a payment reminder on your mobile phone or any other device. This would be the easiest way to ensure all dues are paid. If there are any outstanding amounts on a loan or card account that seem too large to pay off in one go, consider paying small but timely payments towards the same instead. Hence, while this is not the ideal scenario, you would at least be steadily working towards clearing off your debt burden. Let us take a case wherein a person has a credit card that they have been using for the past ten years. If this card has a clean payment history, i.e. no delayed payments, or write-offs or other disputes, it would constitute as ‘good’ debt. Maintaining such a card would over a period of time help the score improve, as this signifies the person’s ability as well intention to repay any debt obligation they may have. You could also consider availing the services of a credit health monitoring company to help you with this task. Professionally trained credit counsellors would work in tandem with you and guide you with ways and means to improve your score. Once the score shows some improvement, the counsellor would also be able to guide you with suggestions as to how to further better the score, and subsequently maintain it.



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