17-Jan-2017 written by : FSI-Team
If you are a financially conscientious individual, you may already know that your CIBIL score will have a large role to play whenever you apply for a fresh line of credit. But what you may not know is that a prospective lender does not stop at one’s CIBIL score. It is the details of the credit report that are scrutinised to find out whether you are creditworthy.
In fact, what matters more than your CIBIL score is the status of your loans be it a home loan or a small personal loan. Therefore, to improve your CIBIL score or to ensure that your credit health is in order, you must have a blemish free credit report.
The first step towards increasing CIBIL score is knowing what matters most. This takes us to the Accounts section of your CIBIL report that contains detailed information of the type or types of credit that you have availed and detailed information of the same. The accounts section also carries details on the "status" of the credit that indicates the "health" of your credit profile. Following are the details of the status of the loans and their connotations that a prospective lender wary will scrutinise before it considers your application for a fresh line of credit:
If the word "closed" appears against the details of a line of credit, it signifies that you have paid off your loan in full to the concerned lender and the lender has acknowledged the closure of the same and reported it to CIBIL. In case you have paid your loan off in full and your loan account is still reflecting as active, it is probably because the lender has not passed on the information about the closure of the loan account to CIBIL. This is a common error because of the humungous amount of data both lenders and CIBIL must handle with the many types of home loans, easy personal loans, car loans and higher education loans that banks dole out every day.
To avoid getting into the loan defaulter list, the onus is therefore on you as the borrower to obtain a closure letter or no dues certificate or a closure letter once you have paid off you loan amount in full. In that way, you can raise a CIBIL dispute immediately if you find that a closed loan account is still open. To be sure that the lender updates the information with CIBIL, you must approach the bank with your closure letter and request it to make the required changes to the CIBIL records at the earliest.
When an individual is unable to make a loan repayment in full, he may be forced to make a partial repayment to the lender. If the case is genuine, the bank may choose to "settle" the repayment and write off the remaining amount. Because the lender takes a partial loss in such cases, it will report the same to CIBIL and the term "settled" will be used against a loan account. The important thing to note in such cases, that even though a loan is settled it does not necessarily have an impact on the CIBIL score, but will certainly reflect negatively on the CIBIL report of the individual. If you happen to have a settled loan account it will raise an alarm with a prospective lender who may then make a judgement that you are not creditworthy to receive a new line of credit even if it's an easy personal loan or a low interest credit card. The settled status thus raises a red flag and must be avoided at any cost. If you are in a financial spot and are unable to make timely repayments, request your lender to relax your re-payment terms or increase the tenure of your loan, rather than choosing to settle the loan.
This is the worst of the lot with respect to loan status and indicates that you have not made any repayments for the past 180 days and have made no attempt to contact your lender. In such cases the lender must "write off" your outstanding loan as a non-performing asset and report the same to CIBIL. A written off loan not only brings down your CIBIL score but also remains as a blotch on your credit report for the next seven years. With a written off loan status on your credit report you have little chances of getting a fresh line of credit.
Once again, if you feel that you are in a spot and unable to repay your loan as per the terms stipulated in your original loan documents, approach the lender and discuss your problem. If you have a genuine case, the bank may consider making repayment terms easier for you or increasing your loan tenure. This will give you the time you may require to overcome your problems and continue your repayments as scheduled. On the other if a loan account features as "written off" in your credit report, chances are that you will not get any fresh line of credit for the next seven years.
Thus, as you can see, your loan status is an important component of your credit report and will determine your fate when you make an application for a new loan or a credit card. Therefore, your loan status should be paid more attention to, even more than your CIBIL score.