Patience is the key to rebuilding your credit score after bankruptcy

What is bankruptcy? Bankruptcy is a state where the borrower who has borrowed the money from a bank or any financial institution, puts the hands off from the credit or the debt that is taken and denies to pay it anymore. There are two types of bankruptcy. Wilful bankruptcy one where the borrower says that he or she does not want to pay the debts anymore because they do not have adequate funds to repay the debts even after considering that all the property or assets which they have been diluted, the loan amount still is much higher than it. And the other one is where the borrower says with his or her wish that they will no longer pay the balance amount of the loan and want to declare the bankruptcy.

In either of the case, if genuinely the borrower has no money or if they do not wish to pay the money, the bankruptcy will be reflected in CIBIL Report. Once the bankruptcy is reflected in the report it will take seven years to start it again. For the next seven years the individual will not be able to borrow any loan or credits from any banks or NBFCs or any financial institutions. By that that what they can do is, if they have any secured type or credit like secured credit card: where FD is kept against the credit taken and just in case that if the borrower denies paying the bill, the amount can be deducted from the fixed deposit that is kept against the credit card, or any of the loan which has collateral like gold loan or home loan where the asset is there against the amount can be tried to apply for. In such cases, eventually, even if the credit score is on the toss, they still can say that the history of past years on other credits has been taken seriously.

Bankruptcy has a huge effect on credit score. It’s like the “it will take a decade to be okay” thing. As said earlier, it will take 7 years to get that title off the report. But along with this the name also will reflect in loan defaulter list. With multiple attempts and many years of serious practice of repayments of the credits that will then be taken may change a bit. Even in the usual case when the score dips, patience is the first thing one has to keep to get the scores up. It is not difficult to get the score above average. That comes with a question what is a good score? So, credit score is a 3-digit number, ranging from 300-900. any score which is 750+ is considered a good score. Ranging between 600-750 is an average score and the lesser than 600 is into the poor score.

Bankruptcy comes under the negative flag which once tagged, takes many years, seven specifically to get it out of the CIBIL report. Get it out does not mean that after 7 years the entry will be marked off and will no longer reflect the report but it means that the effect it has on a report which will not allow the lenders in usual cases to approve the credit application will go mild. Also, with all the patience and the hard work one must show in the other credits they have had in past years will show up in the report.

It is understood that a decade is definitely 10 years and will take a lot to again get that score back to 750 or more, but the event of a bankruptcy is that huge. Patience is all one can keep so as to make the effort and be diligent in repaying the new credits on time without delay or the missed payment and the hard work will surely pay off!

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Pay Your Credit Card Bills Before Due Date to avoid low Credit score

Who is a responsible person? An individual who is always taking care of the liabilities that are on him/her. When we talk about a financially responsible person, is the one who is able to keep a balance between the spendings and savings. Further bifurcating, a person who has applied for any type of credit is responsible when he/she makes the regular payments of the credit that they have taken. And when it comes to a credit card, it’s the one who pays the credit card bill in full amount on or before the due date. The question may arise is, why?

A credit score is an important aspect of today’s lifestyle where many of the people work on credits, Credit Cards, and loans taken from financial institutions like banks and NBFCs. The credit score is determined by five factors, Payment history, Amount owed, Credit mix, New credit and Length of credit history. Here, the most import and the highest weighted parameter is Payment history. It consists of 35% of the whole score. One may check the score from any of the credit bureaus that are established in India viz. Transunion CIBIL, Experian, Equifax, CRIF Highmark, they have the same score of 35% for payment history. Paying the bills of the credit cards and paying them timely shows that the borrower is accountable and serious about the credit that he/she has taken and the leverage that has been given to them.

Some may say that a few missed or late payments do not make a much difference. But, one should never listen to them. If not initially, but definitely eventually the credit score will get affected. Because eventually it will be a habit and then the score will take huge dips. There have been many examples that few missed and delayed payments a decade ago, which are obviously reflected in the credit report affected on the approval of bigger loans like home loans or business loans now. They either were not able to get the loan approved because of the small careless attitude a decade ago and they were to end up paying a huge amount of interest as they had Low CIBIL Score. The score ranges from 300-900 where 900 is highest and 300 is lowest. 750+ score is a good score, 600-750 is considered average and any score below 600 is considered low or bad score!

Let’s understand this by one of the examples. Sanjay, A 34 years, IT analyst is a project manager in a reputed firm. He has been living away from the family since he was 18. I.e. much sooner as he completed his 12th-grade studies. He did his bachelors and started working at the age of 21. he got the credit card when he was 22. He then took an education loan at 25 and persuaded his masters. First few months were okay as he had saved while he was working. But, later at the end of the third semester which is a year and a half after he started doing his masters, all his savings were exhausted and he then started to use the credit card. Since there was no source of income and he did not want to ask his parents, they were almost seven to eight months where he either was paying the only minimum due or sometimes skip paying the bills or multiple late payments. He knew he was not doing correctly. So he went to the bank and asked them to close the account and then forgot it. Much later, when he was 32, he wanted to buy a house and so he applied for a home loan. And when getting it rejected he checked his credit score and credit report. He had Low CIBIL Score and the major reason was that card which had applied to close it for. It took him two years to get the score in level and had to anyway pay that amount plus the interest that was charged for these many years!

So, if you have a credit card or you may have credit cards, make sure you do not make defaults or do late payments or miss few payments as it will affect the credit score and that will be always reflected in credit report!

Is it easy to get a Credit Card for a Self-Employed Person?

You are standing at a store, with all the things you wanted to buy, waiting for your number to pay and collect all kinds of stuff and leave for home. While counting the money you have there ate 2100 Rs less than the total bill that it is. But whatever you have bought is all important at this hour you cannot drop any item of the one that has picked. Now? There have been many situations like these were just for few of bucks you would have to think now what?! it’s like that embarrassing situation where you really can’t think of anything cause borrowing or asking from someone for the cash is odd!

Credit cards work best in such cases. Credit card as we all know are a boon where we have the privilege of using the money that we do not possess right now! You use the money now and pay it later. In usual cases the next month and if it is in EMI module of a few purchases that you pay it in the monthly small amounts divided by the merchandise company. But the whole point is that it’s not at the same moment. So while having the emergency it’s best to have one. Now the question is: how to get a credit card? Who can apply for it? Or can everyone get it? There are certain criteria for the approval of credit cards.

1. The primary holder of the card should be 18+ in age

2. The applicant should either be a working professional or self-employed with a regular source of income

3. There should be a saving account on his/her name

4. There should not be any bad defaults that must have been made in past

With these criteria, the credit score is also one of the factors that are checked before getting a credit card approved. The credit score is established only after having a credit for six months, so what if someone who has never applied for any type of credit or they have not taken any loan? With the fixed income of a few months and checking other parameters, the credit card can still be approved even after having no credit score. It might not be the one with a huge credit limit, but a one with basic credit limit can be applied for and will get approved. Also, the usual credit cards and an unsecured card where the credit line used is first paid by a bank to the purchase place, and then the user pays it to the financial institute. However, there is an option called as a secured credit card. In Secured type, the applicant has to keep a fixed deposit of the amount which they want the card limit to be. Any bank will approve this credit card as they do not have a risk here. Even if, just in case the cardholder do not pay the credit used, they can always get it from the fixed deposit that is been made.

Coming to the topic if a self-employed individual can get the credit card easily. 2 things. A. If they are planning to get a secured credit card, that is no brainy. They will easily get it. B. if the income of a self-employed individual is very much constant from a long time, they will still get it pretty easily. But, what if there is no constant income or the self-employed individual has just started? In such a case, it becomes a little difficult to get the usual unsecured type of credit card as a primary holder.

In such scenario, they can always take a secured credit card for starting and after it’s regular usage and repayment they can always talk to the bank, ask them to check the report and get the normal credit card approved and that will be quite easy!

Application Checklist for you before Taking A Loan

Personal loan is a very convenient way of borrowing money from banks and NBFCs to meet any immediate financial need. The process is extremely fast and simple provided you have all the documents required in order. Since personal loans are unsecured, banks need to ascertain the credit risk associated with the borrower before sanctioning the loan. They approve of a certain loan amount depending upon the repayment capacity of the borrower. They require you to submit proof of income and some other important documents to ascertain your eligibility for the loan.

There are some important things that one must take care of before applying for a personal loan. Here is an application checklist that will guide you if you are availing for the personal loan for the first time.

Checking the credit score

Since banks use your credit score to determine your eligibility for the loan, it is a good practice to check your score yourself first to know your chances of approval. Order your free credit report from any of the three credit rating agencies to analyse your credit standing. Having an excellent score helps in instilling confidence in the lenders and bargain for an attractive rate of interest. However, if you don’t have a very good score you can opt for personal loan without CIBIL score that are available at exorbitant interest rates.

Finding the Eligibility criteria

Different lenders take into consideration different factors to ascertain a person’s eligibility for the loan. Find out the eligibility criteria of the specific lender with whom you wish to apply for the loan. Check the parameters like age, occupation, income and credit score before proceeding with the application. Get a list of documents required so that you have all the relevant paper work when you apply for the loan.

List of required Documents

Contact your lender and get a checklist of the documents that you need to submit along with your application. The requirements of the documents vary based on the profession, income and loan requirements. However there are some common documents that you must have in handy. For an ICICI Personal loan you may require

  1. Valid Proof of identity- A copy of passport, PAN Card, Voter Id Card or driving licence serve0s as a proof.

  2. Proof of address – Copy of passport, Aadhaar card, rental agreement, utility bill, ratio card.

  3. Proof of Age

  4. Financial documents

  • For salaried employees- Bank statement for last 6 months, Salary slips of last 3 months, Form 16 for last 2 years, Employment certificate or appointment letter

  • For self-employed Individuals- Bank statements of savings and current account, proof of office address, ownership proof, Income tax returns of last 2 years, detailed financial audit including Profit and Loss statement and Balance sheet. Since the source of income of self-employed individuals is riskier than that of salaried individuals, these documents help in providing an assurance to the bank that they have a steady inflow of funds.

  1. Passport size photograph

Since personal loan is unsecured in nature, the lender verifies the documents thoroughly to make sure that the borrower has the capacity to repay the loan.

Interest rate charged

The rate of interest determines your monthly EMI on the loan. Find out the best rate that you can get. Also look at the processing fees, late payment charges, prepayment fee etc. It is important to have a clear understanding of these charges before you apply for the loan.

Repayment plan

Use the EMI calculator to plan your repayment in advance and choose a tenure that suits your budget. Take into consideration any major changes in your income or expenses that you expect in near future. Being realistic helps in avoiding any future defaults on loan that may adversely affect your CIBIL score.

Taking care of this essential checklist will ensure that you get approved for a personal loan at good terms and rate of interest.