My name is Sonali Kulkarni. About three years ago, I settled a loan for 4 lakhs that I took from a NBFC. That settlement still shows on my credit report. It is affecting my credit applications. What can I do to have it removed from my report?
What Sonali has faced, you might be facing too. What she didn’t know is that such “settlements” reflect in the credit report for at least 7 years from the date of last reporting. Yes, as shocking as it may be having unhealthy credit practices or having been reckless with regards to your finances, can affect you miserably for a long time. Our most sincere advice to Sonali was to adopt healthy and responsible credit practices.
Theoretically, a lot people will suggest you to “observe credit discipline” and adopt “healthy credit practices”. We shall answer in this article what it really means to be credit disciplined and how you can be counted as a “responsible credit user”.
There are a number of ways on how to boost your credit score, however, there are some practical habits that you can start implementing from this moment onwards. Below are some very realistic tips that will help you to improve CIBIL score and also by practising these on a regular basis you will be able to maintain authority on your finances.
- Avoid cheque bounce: Some things are beyond our control. But things like issuing cheques and allowing them to bounce due to “insufficient funds” is very much within our control. A cheque bounce will not only attract bank charges, further reducing your balance but also adversely impact your score. Issue cheques for amount that you have or else ask to give post dated cheques (PDCs) for dates when you will have funds to honour your payments.
It is most advisable that you streamline your finances. Try to manage funds as judiciously as you can, avoid making hasty impetuous decisions regarding your money and most importantly exercise self control over your expenses.
- Standing Instructions (SI): You may have been late inadvertently in sending payments on your loan instalments or credit card dues. It’s time for taking some corrective action. Do this for future. Find out your billing cycle and your due dates. Set a standing instruction for an auto debit on your salary account or your savings account, where you are sure funds would be available to make the requisite payment. By doing so the lender will automatically debit your account on the set due date and this way you will not be hassled with remembering all the payment cycles. But make sure the account on which you have set the SI should not be out of funds before the due date orelse you will again become a defaulter on loan.
You can set SIs for your electricity bills, phone bills, etc too. This habit will keep you free of any anxiety over bill payments.
- Stop applying for credit from various lenders: You are already in the red zone because you have been unable to service your obligations properly. Yet you go ahead to ask for futher loans? No. This is not a good habit. Firstly, since you are already struggling with a low rank of credit rating, CIBIL member banks and NBFCs will not be willing to sanction any further credit to you. Bankers will be cautious of you as you are bound to exceed your debt servicing capacity and due to overload of credit you may not be able to honour any repayments.
Secondly, even if you do have loans from several banks you are bound to mismanage them and forget to make timely payments. A responsible credit user will consolidate his debt to not more than two loans. That means, pay off all other petty debts using money from one loan and then service that single loan on time.
Thirdly, it does display that you have an insatiable hunger for credit. Banks and lenders are unwilling to party with such individuals. Credit discipline demands that you do not display such inappropriate behaviour.
- Prefer Secured Loans over Unsecured Loans: If you must go for some form of credit then prefer to go for secured loans like home loan, loan against your FDs, loan against gold or property or equity holdings. Avoid asking for unsecured loans like personal loans, even if they are easy to get. You may want to apply for a secured credit card vis-à-vis a normal credit card. This is so because, unsecured loans attract a higher rate of interest and that would mean a higher payout of EMI every month. Higher the percentage of unsecured loans, greater will be your responsibility to service it.
- Avoid using too much of your credit limits: Going overboard with credit will indirectly impact your CIBIL report With an overused credit card, every month there will be increasing outstanding balance to pay off. Unless you habitually pay it off in full, which ideally a responsible credit user will, your outstanding balance will just keep building up. This will mean increased credit burden and might put you in a situation where you may not be able to pay it.
Don’t be desperate for credit. Rein in your urges and be more patient. This will yield positive long term benefits and may you never have to worry about credit woes again.