How is my CIBIL score affected by defaulting?

Amit, age 32, has availed of a loan to purchase his house. However, he has not made his EMI payments towards the loan for the past few months. In simple terms, that is known as a default – not making agreed upon payments towards an outstanding loan or credit card account to the lender.

What are the possible reasons for default?

  • Not having sufficient funds to make the payment
  • Unwillingness to make the payment, i.e. willful default
  • Procrastination or not making payments on account of being lax

However, whatever be the reason for not making a payment, it is recorded as defaulting, on your credit information report once a certain period of time has elapsed.

How is my CIBIL score affected by defaulting?

Your CIBIL score, or credit score with any other bureau in the country, is essentially a summary of your past credit history as a borrower. It details the loans or card accounts availed of by the borrower, and the repayment details thereof. Hence, not making a payment, or defaulting on your loan will in turn become a part of your long-term credit history, and negatively impact your credit score. A default signifies to the lender that there is a far deeper problem with the customer’s finances than for example just a delayed payment. This will lower your score, and make any future borrowing difficult.

How can I correct this?

Firstly, if you think that you will be making deferred (or delayed) payments for say the next two months, it is a good idea to speak to the concerned financial institution. They may be able (and willing) to help by working out a revised repayment plan with you.

On the other hand if it looks like your financial troubles are long-term, it may be wise to take the advice of a credit counselor who can best guide you to make the right decisions.

Finally, know that it is not an impossible task to clear CIBIL issues, even though it may appear difficult in the initial stages.

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