Credit Score Improvement

How to Improve Credit Score in India After Default?

April 26, 2022 • 9277 views

Improving your CIBIL score requires discipline and strategy. It's worth the time and effort to improve your financial standing. Once you have achieved a good credit score, you can unlock numerous benefits. If you are struggling with how to improve your CIBIL score after default, this blog covers it all. Here, you will learn about how to strategically overcome such a situation and build a good credit score. 

Benefits of Having a High Credit Score

These are some advantages you will enjoy on having a credit score of 650 or above:

  • Quick Disbursal of Loan Amount

A good CIBIL score helps an individual in a quick approval of loans by avoiding lengthy procedures as lenders can be confident that one can repay the existing loan in future without any delay or default.

  • Competitive Interest Rates

Generally, people with a high CIBIL score get loans at lower interest rates as compared to borrowers with low CIBIL scores.

  • Higher Credit Limit

A borrower with a high CIBIL score indicates low credit risk and is not likely to default or delay any payments. With this, lenders can increase the credit limit of an individual. For an individual having good CIBIL scores, the lender can offer various credit card benefits such as wide acceptance and recognition, lounge access, and cashback and bonus points as well.

It has been observed that some borrowers apply for a loan or credit card, and they use it and subsequently make regular payments for the first six months

Your CIBIL score is influenced by your repayment behaviour and the lenders’ efficiency who report your actions to the credit information bureaus. Hence, you should always cross-check whether your credit score is getting updated upon EMI payments.

Also Read: Why is Your CIBIL Score Important During Retirement?

Tips on How to Improve CIBIL Score After Default

If you do not undertake strict credit score recovery measures after defaulting on loan terms, you may have to face serious consequences. For instance, if it’s a secured loan, the lender will acquire your collateral temporarily to recover the remaining principal. On the contrary, for unsecured loans, the debt accounts are settled after the lender agrees to accept an amount less compared to the actual principal owed.

Although you get temporary relief from not paying the whole amount, these events negatively impact your profile and later on you face much more difficulty in getting new loans.

So, here are some proven tips on how to improve your credit score after default:

1. Keep Your Repayment History Clean

To avoid a lower credit score on your profile, refrain from taking unnecessary credit. All your loans must come with a purpose and before agreeing to a contract make sure whether you’ll be able to manage the EMIs easily once they start. Your repayment performance determines 35% of your overall CIBIL score. Thus, you must try to keep the repayments as clean as possible.

2. Maintain a Low Credit Utilisation Ratio

Utilising the entire permitted credit amount is another major mistake that you should avoid. Borrowers with a high credit utilisation ratio as customers with greater risk as they do not plan their finances properly. This credit-hungry behaviour also reduces your CIBIL score.

3. Maintain a Healthy Mix of Credit

When trying to recover from a default CIBIL score you should focus on maintaining diverse credit types in your loan account. Remember, successful settlement of these earlier deals helps the lender gain more confidence in your repayment capacities.

4. Steer Clear of New Credit

If you are searching online for how to improve your CIBIL score after default, the best recommendation would be to avoid applying for newer loans. Too many loan applications or hard enquiries make a borrower’s creditworthiness steep down. Especially, after a loan default this is the best measure to rebuild your credit score.

5. Check Your Credit Report from Time to Time

Anyone working towards improving their credit score should keep a close eye on their credit report. This helps in figuring out whether the actions that are being taken are helping or not to improve the loan default situation. Also, this habit ensures that you successfully notice any error postings in your credit report.  

6. Stay Calm and be Patient

Questions like ‘how long will it take for my credit score to be improved’ are quite common. The answer is at least 6-8 months. During this period, you should be patient and work towards improving the three-digit score without losing the rigorous discipline.

Also Read: What is the Minimum CIBIL Score Required for a Credit Card?

How Difficult is it for People with Negative Credit Score to Get a Loan?

It is a bit challenging to get favourable loan deals when your credit score drops below 580. However, the possibility of securing emergency funds doesn't completely fade away. In case you have managed to get a hike in your salary or do have an additional income source, you can put forward those elements to get a better loan deal. For such instances, you may have to pay higher Personal Loan interest rates, but your financial crunch will be successfully dissolved.

To bring down the interest you can apply for the loan with a co-applicant who’s ready to be the guarantor. In such cases, the other person must have a steady income source and a comparatively better CIBIL score to be held eligible.

Finally, you have to implement all the above-mentioned strategies without further contemplating on ‘how to improve CIBIL score after default’.

What is a Good CIBIL Score to Have?

A good CIBIL score is any number between 700-900. If your CIBIL score comes within this range, then you can get approval for higher loan amount requests at a competitive rate.

Check Free CIBIL

These are the steps you must follow to see your CIBIL report for free:

  • Step 1: Visit the official website of CIBIL.
  • Step 2: Click on the button ‘Get Your Free CIBIL Score’.
  • Step 3: Enter your details and click on ‘Accept and Continue’.

On following these steps not only can you see the score but also you can review some personalised loan offers that have higher chances of approval.

To Conclude

You must contemplate how to improve your CIBIL score after default as financial crises can lead to the need for loans anytime. The most positive aspect is that with proper planning you can successfully avoid such situations. Also, with responsible borrowing, you will be able to apply for more loans and fulfil your aspirations on time. Moreover, with a high credit score, you can get Personal Loan offers at attractive interest rates from Poonawalla Fincorp today!

Frequently Asked Questions

  • How much will my credit score increase after the default is removed?

Once the default is rectified, your credit score starts improving slowly. The exact frequency at which your credit score gets better depends on your overall credit behaviour. If you manage to make prepayments and do not apply for multiple loans simultaneously, then your credit score steadily goes up.

  • Is it worth paying a default?

Paying a default does not positively impact the credit score unless the borrower pays back within the first month. But removing it sooner improves the chances of getting favourable loans going down the line.

  • What happens 6 years after a default?

The defaulted debt is removed from the borrower’s account and thus they do not need to repay it any longer. Following this, most lenders refuse to lend money to such borrowers while a few agree to furnish loans at very high interest rates.

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply

poonawalla fincorp team

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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