Reasons why errors on your CIBIL Report can be Destructive

Priya wanted to gift a new card to her parents on their anniversary. She chose the car, model and color keeping her parent’s choice and requirements in mind. She then applied for a loan, she knew it would not be difficult to get a loan as she had all the required documents and she had also maintained a good credit history. Her loan was rejected due to a low credit score and she was almost shocked as she had always been a responsible borrower. On going through her Credit Information Report she was shocked to see that there were delayed payments reported in it. She had never missed a payment and it turned out it was a reporting error by the lender.

So Priya missed a chance to gift her loved ones at the right occasion, this could have been avoided if she had been pre-emptive and had applied for a free CIBIL Score and checked if the score is acceptable to the lending agency. Despite being meticulous in her credit habits she had to face some problems.

How can errors in your CIBIL Report be Destructive?

While for Priya it was disappointment, a low CIBIL score can cause bigger problems too. It can result in financial loss, missed opportunities and a lot of wasted time and effort for no fault of yours. Being credit healthy is important and it could be doubly distressing if despite being a careful borrower your score is low due to an error in the report. While these errors can be rectified and once they are removed from your report they will enhance credit score but sometimes the delay can cause a lot of trouble and loss too. These errors could be wrong reporting of a default in payment, a loan or credit card that does not belong to you being reported under your name which will reduce your borrowing capacity and if there have been any defaults on that loan they will also be include in your score calculation.  Here are a few ways in which these errors can be destructive:

  • Cause Loan Rejection: If a lender reports that you have missed a payment or the loan is reported as settled erroneously then this could cause some serious trouble for you. Not only your credit rating will take a hit, a look at the CIR will scare away the lenders. No lender wants to lend to a person who does not pay on time or is a default risk. Thus the lender will not know that the reporting in the CIR is erroneous and they will reject your loan application without a second though whatsoever.
  • Harm your Job Prospects: This may not seem like the most obvious impact of an error in the CIR but could be more harmful then getting a loan rejected. Imagine not getting the dream job or losing out to a competitor in the final round of interviewing due to an error on your report which can cause you to appear like an untrustworthy candidate or somebody who is debt ridden. Increasing number of employers are seeking credit check of prospective employees along with a background check and a health check. This is to ensure that the employee that they hire is trustworthy and will not get into legal trouble due to unpaid dues. Thus an error could cost you dearly at a job interview.
  • Credit Card Application Rejection: An error in the CIR could also cause a new credit card application to be rejected. If your CIR show you have a high utilization ratio, missed payments or have a “settled” status account in your report even erroneously it could lead to the card company rejecting your application. While you can certainly apply for the card again after rectifying the error but sometimes the delay can cause more than expected trouble.
  • Make a loan more expensive: Errors on the CIR can lower your scores which can cause lenders to assume you to be a high risk borrower. This can make them charge you higher interest rates on loans then they would have charged otherwise. Higher the risk, higher the interest you are charged so you can end up paying more interest on a loan for no fault of yours.

The best way to avoid getting into a situation like this is to get your credit report from time to time so that you are aware of any errors in it and get sufficient time to rectify it. This will ensure that you do not suffer any losses because of these errors.

 

How Poor CIBIL Score Can Destroy Your Financial Goals?

You may not realize how poor CIBIL score can affect your life, but if you take a closer look you can see how it has the power to set itself as a major obstacle in several areas.

Here are a few ways how bad credit score can destroy your financial goals:

  1. Lack of Access to Money

Finding a loan for low credit score is harder than you think. Thus, if your life threw a curve-ball in the future and you need money on an urgent basis, things can become bleak easily. Most credit lending institutions perform a through credit check for every single loan application, and if you have a poor score it is highly unlikely that yours will get approved.

  1. High Interest Rates

Obtaining a loan for low CIBIL score is not impossible, but it comes with a catch- high interest rates. When the applicant has a history of CIBIL dispute  or lacks satisfactory CIBIL score then the lenders deem them as ” a high risk candidate”. To balance the risk they charge hefty interest rates for the personal loan, or any other kind of loan that they seek. This money paid in extra interest can be a lot, and thus make it difficult to manage the EMIs along with the monthly expenses.

  1. Job Risks

The importance of CIBIL score is increasing by the day in India. This is evident from the fact that more and more companies have started making it mandatory for the job seekers to have no history as a loan defaulter if they want to apply for jobs. SBI was one of the first to demonstrate this, when it mentioned clearly in the job advertisement that those candidates who had ever defaulted on a loan were ineligible for the posted jobs.

If you have a poor credit score then finding a good job can become difficult for you in the future. Even your existing job can be at risk if you default on a loan, as your company may look at it as a sign of bad money management and lack of responsibility.

  1. Increased Stress

Bad credit can rob you of joy in many ways. You start worrying constantly about your finances, and if you have a family to support then things can only become worse. Every time your phone rings you wonder if it is your debt collector. Paying with your credit card also starts making you nervous, as you pray that it doesn’t get declined when a seller swipes it in the machine. All this stress eventually forces you to seek professional help from a therapist of a doctor, which again costs you a lot of money, and you get caught in a vicious circle.

  1. Financial Limitations

Your finances can come under rigid constraints when your CIBIL score falls abysmally low. You have to limit your expenses in every possible way to get rid of the accumulating debt. Thus, unless something is really important, it has to wait until the debt is cleared. Home needs renovation? It has to wait. Car is broken? Need to use public transport for a while.

Needless to say, your quality of life takes a blow when your credit is not looking good. You can’t even apply for a new credit card, which could make things slightly easier for you, as for that too you need to have a good credit score.

Once you have understood the points mentioned above you can easily see why CIBIL score is important in your life. Even if you feel your score is good enough, you should never stop being careful with your debt payments. Missing one single EMI can have an impact on your credit report.  Plus, you can always improve credit score, if you know the basics of the same. If your score is already plummeting then it is best to get an expert to help you out. CreditSudhaar, for instance can provide you some of the best credit experts who can help improve your score in the smallest time possible.

 

What CIBIL Score Should I Have To Get A Business Loan?

When one hears someone talking about CIBIL, one tends to believe that it must be related to an individual who is seeking loans such as personal loans, home loans etc. What is not known to everyone is, that CIBIL is the keeper of records for all credit facilities availed by individuals and business entities. Individuals are scored according to their credit performance, whereas businesses are not given any score but their detailed credit reports speak for themselves. Private & Public Sector Banks, Non Banking Financial Institutions, Housing Finance Companies, and other financial institutions, that actively lend to businesses, use Company Credit Reports to estimate the company’s ability to repay the loan sought before they extend any credit facility to a company.

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Unlike individual scores there are no benchmark CIBIL score that you must possess to get a business loan however, there are details in your credit report that could dampen your plans of seeking credit or accentuate your creaky credit situation. You must watch out for them and work to make sure these don’t make way into your report.

 

Understanding the Company Credit Report

 

A company credit report is a factual account of your previous debt repayments, the credit lines availed, lenders who have extended credit and lenders who have enquired into your report in the past. This report helps a prospective lender analyse the creditworthiness of a borrowing firm, which basically means lenders try to judge the likelihood of default by the borrowing entity. The lender is interested in looking for number of “wilful defaults”, suits filed against the company, outstanding loans, existing exposure to credit including those that the borrowing entity has guaranteed etc.

 

Some Commonly Reported – Trade Lines

A business may need several types of loans during its functioning, such as:

  1. Term Loans: Loans that are extended for a specified period and a specific purpose. They can be short term, medium term or long term.
  2. Bank O/D: An overdrawn current account, short term funding.
  3. Letter of Credit: A letter that guarantees to a seller, on account of buyer, that the payment for goods or services will be paid
  4. Bank Guarantee: A sort of insurance against damage or loss of goods or service and to make good the payment.
  5. Lease Finance: Where the bank becomes the legal owner of a particular asset of the borrowing firm and remains so unless the final instalment of the loan is not repaid. In other words, the asset is given as collateral.

And many more.

How to Clear CIBIL Issues

Some of the common stumbling blocks in a report are:

Problem #1: Loans that are “written off” or “settled” by a lender, means loans that went unpaid by the borrower or the lender was unable to extract money from the borrower and were eventually “written it off” in the books of the lender. It quashes a borrowing entity’s aspirations & it may almost never be able to get a loan. A lender may never come around it. Although the report shows information of past 24 months only, but such accounts may remain on your report for a much longer time like seven or ten years.

Solution: Ideally avoiding them could be your best bet. But sometimes, not out of choice but due to financial constraints you were unable to pay off your loans in the past. The only way to have it removed from your report is to pay to the bank now and request the lender to send a clean report to CIBIL for updating.

Problem #2: You have been paying your dues, however in a delayed fashion.

Solution: Change your attitude towards your creditors. This alters the way a lender perceives you. Either the business is not able to generate enough returns to meet the financial obligations on time or the borrowing entity has half a heart to pay back the loan. Either ways, the lender will consider the entity to be very risky. Even if a lender does grant a credit to the firm, it will do so at higher rates of interest.

Problem #3: You seem to be overleveraged already. The amount of debt are already exposed to plays a vital role in estimation of the borrowing firm’s credibility.

Solution: If you are already burdened under a surmounting pile of debt, lenders will be strictly wary of extending further loans. This is because they begin to question your ability to keep up with future repayments. You must first pay down existing debt and then apply for more loans. If you are hard pressed for funds then you could try peer-to-peer or business-to-business loans for the period.

Problem #4: Important financial ratios reflect a poor financial health of the firm.

Solution: Inventory, turnover, receivables turnover, liquidity, leverage, gross profit margin ad return on sales are some of the key financial ratios that credit grantors consider before extending any credit facility to you. These ratios help a lender take a look into the company’s financial health and only if they feel the company is strong financially, they sanction the loan.

Problem #5: The loan to which the firm stood as guarantor has been defaulted.

Solution: As with other things, this again throws a poor light on your credibility. A guarantor has committed to make good a default by the borrowing entity. In the absence of so, the guarantor is as good as the defaulter itself. Although it may not have a direct bearing on your own application but your CIBIL report will carry a remark too. A lender may consider you as someone who does not honour commitments and your image as a borrower will be tarred.

There are certain items or details in your report like incorrect name or address of the firm, repetitive account information, wrong relationship status of the signatory etc. and you would like to have them corrected then raise a CIBIL dispute. You must fill the dispute resolution form online to highlight your concern with the bureau. However, you cannot have any intended defaults or late payments removed from the account.

A clean and healthy credit report enables a borrowing entity to capture favourable terms and gives an upper hand to negotiate lower rates of interest. Thus it is in your own interest to be a responsible credit user and make sure your report shows a credit friendly firm.

There Is a Big Difference Between Credit Report and Credit Score

This title may seem a bit absurd to you but it is not. Both seem to be similar terms, both are recorded by CIBIL and both are used by lenders to assess your credit worthiness. Yet, there is actually a difference in your credit score and your credit report. It will be easy for you to understand the difference after you have read this article.

Imagine this. You have appeared for an exam regarding your debts taken and how you have used your credit card etc. Your score is the number of marks you have obtained in the exam. Your report gives an account of your performance in words throughout the year, your answers to questions in the exam and also your teacher’s comments. When you apply for a new loan, it is like you have applied for admission to a new institution and the principal of that institution would like to read your previous report card first. She then looks at your score, which are your marks and your answers and teacher’s comments. Based on this she decides whether to give you an admission or not. There could be no simpler explanation than this.

It is true that you may have a score of 700 but your loan application may be rejected due to reasons in your Credit Information Report. While it is important to increase credit score, it is equally important to make sure you have a good credit report backing it.

One of the main difference is that your report contains data for atleast 36 months where as your score is calculated according to past 24 months’ data.

Your Credit Score

Your CIBIL TransUnion Score or, as commonly referred to, your credit score, is a three digit number which is calculated according to a proprietary formula using information given in your credit report under the “accounts” and “enquiries” section. Your credit report is a worded document that holds factual information. CIBIL uses this information to calculate your score. Your score may be anything between 300 & 900. The higher the score, the better it is while the lower the score the poorer it is considered.

Primarily these are the factors that affect your score. They are:

  1. On time Payments: Incase you have a record of always paying your loan instalments or credit card dues on time, then you will be rewarded for your diligent behaviour with a higher score. Details of such payments are recorded in the CIR in a schedule, showing month wise payments you went past due. This schedule is maintained for 36 months.
  1. Unsecure versus Secured Loans: Your score is higher if the fraction of secured loans like home loan or car loan or loan against property, is higher than unsecured loans like personal loan, credit cards or education loans, in your total debt portfolio.
  1. Number of “Hard Enquiries”: Once you apply to use a credit facility, you authorise the lender to withdraw your CIBIL report. Whenever a lender draws your credit report it is termed as a “hard enquiry”. The more the number of such enquiries, the poorer will be your score because it shows that you are constantly in need of more credit and are not able to handle the funds wisely.

A glance at your score is enough for a future lender to make judgements about your credit past. A lower score will make the lender assume that you have not been responsible with your payments, you have more unsecured loans or that you are always seeking fresh credit. How many of such assumptions are true, the lender will find out by reading your report in detail.

A score of “NA” or “NH” means, either your credit history is not six months old or that you have had no credit relationship for atleast the last 24 months.

Your Credit Information Report

This report is the power house of information on your credit history. The CIR records previous information and is periodically updated by CIBIL as per the information received from its members.

  1. Using more credit limit: There is no direct bearing on your score if you use the entire credit limit. But it does impress upon lenders that you may come under huge debt burden by using more credit.
  1. Income to EMI ratio: The thumb rule is that the total EMIs paid by you should not exceed 50% of your Income. Incase you are at a limit of 50% already then lenders will not sanction further loans to you. So even if you apply for a small personal loan and you may have a good score, based on this eligibility criterion, your application may be rejected.
  1. Disputes: Incase you find any discrepancy in your report you can raise a CIBIL dispute. But if you are not happy with your score, you cannot raise a ticket on CIBIL.
  1. Consumer Dispute Remarks: This field has been recently added to the credit report. Here the customer can choose remarks for accounts where a flag has been raised. Such remarks will be available on the report for atleast a year.
  1. Details recorded:
    1. Under the “Accounts” section of your report, the date of last payment, payment frequency (for eg: monthly) and Actual amount paid are recorded for every credit account.
    2. Information about all the loan accounts is maintained under “Accounts” section of your report. Details of total credit limit, sanctioned limit, rate of interest and outstanding balance are all recorded and updated periodically in your credit report. Details of collateral are also recorded in the report.
    3. Information regarding all “hard enquiries” is recorded under the “Enquiries” Section of your report.
    4. Loans on which you are a guarantor, an add-on card holder, status of accounts (closed, settled etc) are all recorded in the credit report.

Summary

The long and short of it is that even if you have a favourable score, you may face a rejected loan or credit card application due to unfavourable factors in your credit report. It is only vital and advisable that you plan your finances in such a way that both the elements are taken care of.

What are the factors which affect your CIBIL score?

It is not every day that you need to fix your mobile or television or AC or any gadget for that matter. If you follow the instruction manual, and if you are lucky to have a non-defective item, your gadgets will have a long life. Where exactly am I going with my talk of machines and gadgets? Well, the same principle applies to one’s credit maintenance. The credit landscape has advertisements on every bend that welcome you to take the ‘right’ turn with a score that is upwards of 700. Anything short of that, and you have to take more uphill roads to reach credit haven. So, let’s see how you can consistently stay on the right side of 700.

CIBIL gives you a score ranging from 300 to 900 based on a round-up of your credit history. If you have never approached banks or similar institutions for credit cards or loans, you do not exist in CIBIL’s database and you will not have any report to show lending institutions. So, while not having a good score is stumbling block when you apply for loans, not having a credit history is also questionable. It is not that much of an issue if you are salaried or have a steady income and you are approaching credit card companies for the first time. But, it does become a point of contention when your search extends to the best home loans in India. If you are going to be applying for it, your credit report from CIBIL will make the journey much easier. Let’s turn to the top factors to maintain a steady score, so you never have to worry about how you are going to get a loan for low CIBIL score.

Pay your dues on time

When you get your credit card bill for the month, do you stick to paying off all the credit that you have drawn the past month or do you let it roll over to the next month either out of forgetfulness or laziness or just because you have more important bills to pay off that month? If you are doing so, you are hurting your CIBIL rating badly. You would need to show greater financial discipline to score more. Banks exist to make money. They would be cautious about giving loans or cards to anyone who has a history of defaulting his/her payments. They wouldn’t want you to be their loss maker. In this context it must be stated that minor defaults – payments missed under 90 days have a temporary setback on the CIBIL score, while major defaults – those that are beyond a period of 9o days damage your score for a much longer time.

So, paying off dues on time is arguably the most essential trait that could give you a favourable score.

Utilize credit moderately

Every credit card that you have has a maximum limit that you need to abide by. However, that does not mean that you max out your card every month. Doing so indicates that you are credit hungry and lowers your CIBIL score. The other side of the story is that if you utilize up to 30% of your credit limit, you automatically score well in your CIBIL report.

Curb the urge to stock credit cards

Avoid the impulse to decorate your wallet with colourful credit cards – especially if you are thinking of applying for a major loan, like a land mortgage loan, in the near future. Lending institutions view this as an indication that you cannot live within your income and are over-dependent on credit. They are skeptical about your capability to repay any further debts. So, use your limits wisely and let that reflect in your score.

But, don’t be over-cautious about using credit cards

If you own plastic money, make use them regularly. Only be sure to pay the balance off on time (Advice #1). Does that contradict what we just said about using too many cards? Not really. The key to maintaining a healthy score is to using them without excess. Owing a credit card and not using it does nothing to your score. On the other hand, showing that you can keep your debts in control, by paying off dues every month gives you a healthy score. So, go ahead and keep your cards active.

Dummies Guide to the CIBIL Defaulter List

CIBIL defaulter list

Being credit healthy is the key to an individual’s financial fitness and in today’s times is an important aspect that cannot be overlooked. Whenever you apply for a loan or credit card, the first piece of information that a lender considers is your credit score, an integral part of your credit report. Not just restricted to loans any more, globally credit scores are used by telecom and insurance companies to evaluate prospective customers as well as employers as part of the hiring process. Landlords too factor in the credit score when deciding whether to rent out property to an individual.

What is a credit score? Does it differ from a CIBIL score?

A three-digit indicator ranging between 300 and 900, a credit score tells a lender about an individual’s creditworthiness, and whether lending to a person would be risky. Higher your score better are the chances of your loan or credit card application being approved. A credit score is generated by a credit information company, or credit bureau, based on the information provided by its members (banks and financial institutions).

In India, there are 4 credit bureaus licensed to operate by the Reserve Bank of India, namely CIBIL, Equifax, Experian and CRIF High Mark. Of these,the oldest bureau of them is CIBIL and hence credit scores are often called CIBIL score colloquially. However, all bureaus generate scores, and you can avail of a report from any or all of these bureaus.

What is a CIBIL defaulter list?

When a person defaults on a loan, i.e. fails to make payments towards EMI or does not pay off credit card outstanding, it eventually becomes a payment default. Categorised into buckets, a lender will take increasing action as the number of days past due also increase.

When an individual defaults, the lender puts them into a loan defaulter list, which may then make it difficult to avail of credit subsequently. These lists are often shared with other financial institutions as well.

However, CIBIL itself does not maintain a loan defaulter list. This is because CIBIL does not generate the information in the CIBIL report itself, it is based on what its members i.e. lenders provide. Hence, CIBIL will neither modify information in the report of its own accord, nor classify any customer as a defaulter.

If you wish to get your name struck off from the lender’s loan defaulter list, consider getting in touch with the lender and working out a suitable repayment solution. What you would then need to do is contact the concerned credit bureau (where the data has been reported) and file a dispute.

How do you raise a CIBIL dispute?

The first step would be to call for a copy of your CIBIL report, at a nominal fee. With a quick and hassle-free process, your credit report would be delivered to you within a short time span. Once you have the report, go through it at length and check for any discrepancies. Remember, every small error in your credit report can have a negative impact on your score; hence it is imperative to ensure that all the data contained in the report is accurate.

There can be various types of inaccuracies in a report, for example, basic information such as your name or date of birth could be incorrect. However, what impacts your score is incorrect account information, and this requires immediate rectification. Let us assume there is a loan account on your report that you are not aware of: you could well be a victim of identity theft in this instance, wherein your personal information has been used to avail of a loan by someone else. However, any default in payment on such a loan will continue to reflect on your credit report. It is also possible that owing to an ongoing dispute with a credit card issuer, you have not made a payment as per the due date. However, even after settlement of dues it is possible that the credit report shows a skipped payment, as the records have not been updated.

How is a CIBIL dispute resolved?

When you identify an error in your report, contact the credit bureau at once. With easy to access online dispute redressal mechanisms, it is easy to initiate the process. Of course, do remember to have concrete proof – such as a payment acknowledgement from the lender – when you file a dispute. CIBIL will then take this up with the concerned lender, and depending upon the lender’s decision (whether to accept or reject the dispute), corrected data will be sent back to CIBIL. This entire process can take up to 30 days, depending upon the time taken by the lender to revert to CIBIL.

In conclusion

Seeing the necessity of maintaining a clean and good credit history, you should check your report at regular intervals and ensure that there is no incorrect information therein. Else, do make sure that you raise a dispute and have the same rectified, in order to be able to avail of the best credit solutions when you actually do require them.

How to get a loan with a low CIBIL score

So you have a low CIBIL score and still want to apply for a loan. Follow the following steps to be able to have access to credit facilities:

  1. Check your CIBIL report thoroughly for any negative flags or more importantly an error since errors can lead to serious implications and result in loan application getting declined.

  2. In case you have had repayment issues in past and have unpaid amounts due on your accounts, please contact the concerned lender and pay them complete dues till date. Any outstanding past the due date again will have detrimental impact on your credit health and thus lead to underwriter declining your credit request.

  3. Once you have paid off your dues to the lending institution, they shall give you a letter of no dues. Do ensure that the letter being given by the lender explicitly states that the negative flags like “Settled” or “Written Off” on the particular account will be removed from the credit bureau report. Continued reflection of these negative flags again will lead to rejection from banks and thus making the availability of funds inaccessible.

  4. Errors on credit reports are common. Please check your report thoroughly. If you find any error on your report, please contact the concerned lending institution and CIBIL, and raise a ‘cibil dispute’.

  • On doing so, the CIBIL will forward the request to the financial institution that has reported the data.

  • Upon getting a clarification from the concerned lending institution, the credit bureau shall rectify the records. This shall in turn lead to improvement of your credit score.

  1. Remember that while your credit score plays an important role in the loan approval process, other factors are also taken into consideration by a lender.

    • This is especially true for loan products.

    • It is likely that a low score may mean approval of a loan at higher interest rates, or with other mitigating measures.

  1. Consider trying to better your credit score by getting professional help. A higher score will not only lead to you getting funds at the time of need, but also at a better rate of interest. A lower interest getting charged on your loan will result in substantial savings.