Many of us face this difficult situation when the loan application has rejected due to a low CIBIL score. There is no recourse to it but to wait. At this stage we regret the mistakes we have committed in managing our personal finance. Had we been more prudent in managing them the availability of a loan when we actually need it would have been possible.
How you can avoid such situation? Probably through a checklist which help you in reviewing your situation periodically. Such kind of checklist can bring to the forefront issues in your credits or debts and you will be able to take corrective measures to ensure it does not spoil your credit history.
Here are 8 such checklist points which you can include while reviewing your finances:
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Too Many Unsecured Loans
What type of loans you carry in your personal finance matters a lot for your credit profile. In general secured loans like home or car loan where the asset is given as a security is considered to be good and unsecured loans like personal loans or credit cards loans are not. Whenever you are applying for a loan you should check whether you are going overboard in availing such types of debts. Too many of them will be perceived by the institution that you are hungry for them and will get negatively reflect in your CIBIL. Even otherwise too many unsecured loans are the biggest cause of bad CIBIL report.
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Too Many Credit Cards
I see many individuals keeping 4-5 credit cards in their pocket and feeling proud about it. It may not be a problem until the credit limit in all of them takes a good % of your income. Although what matters is how much you utilize the limits but too many of them will always pose a threat. In emergency, when you are short of funds, you can be tempted to utilize these cards to their limits and that’s where the real problem arises because the total credit limits was always beyond your means. Thus holding too many credit cards can be a moment of joy but they can pose real issues to your credit behavior because utilization is too easy.
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Too Many Settlements
When the debt is beyond our means and we are forced to repay the loan we negotiate with the institution to agree with lesser payout. The institution agrees to it as they are more interested in receiving the principal with some interest. The problem with this settlement is that it will appear in your CIBIL report for 7 years and will be an important factor when banks are evaluating your credit profile. In many situations it will be cause for rejection especially when debt you availed was beyond your means. The biggest mistake here is when this settlement occurs in unsecured loans like PL or Credit Cards s it gives the impression that you availed credit for your lifestyle expenses which is not a sign of a good credit behavior. So if you have settled some of your debt its wiser then to repay the remaining as too many settlement in your CIBIL report will hurt you for next seven years.
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Too Many Enquiries
In normal course of life we pick our phone and enquire about a loan from a bank or any institution. Before CIBIL it was never reported and so was hardly a factor for us. But CIBIL clearly reports when and which date you enquired about a loan and which type. The more frequently you enquire the more it will hurt your report card especially when the enquiry is about unsecured loans and credit cards.
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High Credit Utilization
Even though you may have 1-2 credit cards how much you utilized the credit limit also becomes one of the factor to judge your credit history. If you have a habit of utilizing them to the maximum then it refers to a higher risk of going in default. This is primarily because situations can change such as losing your job. If this credit utilization becomes a habit especially when it pertains to your lifestyle expenses then the situation of default is high. This factor is looked closely when an institution is reviewing utilization by the credit card holder.
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Becoming a Guarantor
Till few months ago becoming a guarantor in loans was not considered to be a bad proposition and for friends/relatives you were happily doing it. But rules were changed by RBI and now you will be held liable for the debts of person for whom you have given your consent of a guarantee. This simply means that you can be named as a defaulter and so your credit history will be in trouble if it happens. Thus you will have to think very deeply whether you are ready to take the liability if it comes to you especially among family members.
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Repaying Loan Just Before Application
Many of us do it. We tend to repay our loan completely just before applying for any other loan. This is wrong and may not be taken rightly by lending institutions especially when it is frequent. It shows that you did it only for increasing your loan eligibility. Rather if you continue your previous loan the repayment will establish a good credit behavior of yours. Think and then decide.
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Not Prepared For Contingencies
If you have availed a loan then you need to be ready for contingencies. Situations like job loss or medical emergencies will force discontinuation of anabolic steroids for a while. In this scenario meeting your debt liability is most important. Default on repayment is the biggest factor in our credit score and has a higher probability during these situations. If you are not leaning towards creating any emergency fund then you are leading yourself towards such situation. This you should bring in review of your debt management.
CIBIL is monitoring and numerous situations has evolved when you would have found the loan or credit card application is rejected. There are many factors which go in deriving your credit history and all of them are important. While living for our lifestyle we miss out many of them and so a regular check should always be maintained on your financial situation. You can create a checklist like above. In case you are unable to deal with crisis or understand your situation you can seek assistance from professionals. If it’s a while you check your credit score then April is a good time to review.
How frequent you review your CIBIL score? Has your loan been rejected for any factors mentioned above?
Share your concerns in the comments section…
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I totally agree with these points.
I am checking my credit scores on 1st April every year from the last four years to ensure that my CIBIL report does not include anything incorrect in it.
Above points, apart from improving your credit scores, are really helpful in one’s financial life. Being a Chartered Accountant, I have the privilege to read all kinds of articles on personal finance but I must say, Young People don’t take their financial life too seriously. Even experienced fellows sometimes overlook these aspects.
One might be rich enough, life’s emergencies do come unexpectedly. So I advise everyone to keep a check on their Credit Scores once a year and inculcate the habit to be financially disciplined.
Sunny,
I agree with what you say and appreciate your awareness towards your financial life. What you are practicing is the right manner to ensure you stay financial healthy. I am sure your advise will help readers in understanding the sound practices towards financial well-being.
Dear Jitendra Solanki, this article was very informative , though i had few Secured loans and repaid them on time. But these points have created awareness and are sure worth knowing.
Thanks for the appreciation Nitin.
my score is 557 . i have two credit cards for which i have defaulted payment for more than a year . but now i have cleared all dues including charges .kinly help me how to improve my credit score
Prakash,
If you have cleared your dues along with all charges then it’s a good step. To improve the performance of your score it’s necessary that you show a good credit behavior. This can happen only if you have some timely repayment going like credit card repayment or any loan. In absence of it it will take a much longer time to see an improvement in your score.
Hi I m using one credit card for which I m paying on time full dues before due date. Recently I saw a fraudulent activity o card due to which bank blocked d card n issues new one. Now dey failed to advise me before block tat there will b a cibil check fr replaced card. I was unaware of dz..my score is 810.. M worried if it impacts my score last time I chkd was in sep end 2015..plz advise n confirm if I chk my score will dere b a negative impact
Renee,
In general, if it’s a fraudulent activity and has been reported to the bank then it should not impact your CIBIL score. However, this depends on whether the bank has given the right information on your CARD to CIBIL. This you can confirm only when you check your CIBIL score. So my view is that you access your CIBIL score and see if it carries right information. If not so then you can raise the dispute with CIBIL and Bank and get it rectified.