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.

 

Does a change in the spelling of your name or surname impact CIBIL Score

Consider the following three situations:

  • Vikas has a three credit cards and he is late in paying the bill by a few days on almost all three of them since the last few months.
  • Priya is getting married next month and is planning to change her name and adopt her husband’s surname post marriage.
  • Ayesha has a home loan which she plans to prepay in the coming few months using the performance bonus she is expecting.

Which of the above three situations is likely to impact your credit score and in what way?

  • Delayed payments by Vikas are harmful for his credit score, the more frequently he does it the worse it is. He will have to remedy his ways and will have to figure out bad credit fix soon to rectify this situation.
  • Priya changing her name or surname or both post marriage or otherwise will have no impact on her credit score whatsoever.
  • Ayesha pre-paying her loan will give a temporary jolt to her credit score but it not something that will have a lasting negative impact on the credit rating.

Name Change and Its Impact on the Credit Score:

As we said above changing the name or the spelling, adopting a new name, adding a surname etc have no impact whatsoever on the CIBIL score. The credit rating calculation is based on five parameters which are as follow: repayment history, credit mix, utilization ratio, credit inquiries and age of credit. Personal details like name, age, sex or contact details etc are not taken into account when calculating this score. Another aspect that needs to be kept in mind is that the income levels of an individual also have no impact on the calculation of the score; however lenders may want to have a look at the debt to income ratio or length of service etc before deciding whether they will lend to an individual or not.

When one changes their name all the details about various loans, credit cards and their repayment etc are carried forward in the new name. Past history whether good or bad is not erased so the score remains whatever it is without any impact on it due to name change.

Since CIBIL gets all data from lenders you need to inform the lenders as well as the rating agency about the name change so that the necessary changes can be made in the records. You will have to update the records with all the lenders from where you have running loans and also with credit card companies. They will make the necessary changes and the records are carried forward in the changed name.

You need not close or surrender your cards due to a name change; you can just inform the credit card company and get a new card issued with the changed name spelling without the need to close or surrender a card. This will ensure that older accounts remain in your credit trail which is good for the overall credit rating.  Women when getting married and changing their name/surname or adding their spouses name need to be especially careful. They should make sure that they get the necessary changes made so that their credit history is carried forward. Failing to do so, they may find it difficult to get a loan or credit card sanctioned in future in absence of any credit trail. It is also important to keep old accounts active and running to have a deep credit trail which gives a better picture of one’s credit behavior.

Though change in name does not directly impact the credit score it may cause delay or hassles if one is looking at applying for a card or a loan in the ensuing period. Change in the records of CIBIL does not happen immediately so they find themselves in a tricky situation when applying for new credit. This can be avoided to an extent by writing to CIBIL directly rather than waiting for the lenders to do so. Also ensure that you have sufficient time lag between the name change process and apllying for any fresh credit.

 

How do I Take Old Stuff Off my CIBIL Report?

Remarks of late payments, and “settled” accounts can be detrimental to your CIBIL score. If not addressed in time these could cause a significant damage that can take forever to repair. By learning how to correct CIBIL report you can save yourself from the efforts that you would have to invest for credit repairing in future.

Late Payments

One of the most common factors that affect your CIBIL score, and turn away potential lenders is the mention of late payments in your report. Late payments are the no. 1 reason behind low credit score in India. This is because the damage they cause is incremental and often unnoticeable in the beginning. People don’t really worry as they should be when they miss an EMI or credit card payment, even though every single payment matters.

When people come asking how to increase CIBIL points then the first thing financial gurus do is take a look at their payment history, for most of the damage is usually done by late or missed payments. The damage cause by late payments is directly proportional to the delay. Late payments are divided in four different buckets, which are- 30, 60, 90, and 120. So, if you make the payment within 30 days after the due date then it would fall in the first bucket, if you make it within 30-60 days then it would fall in the second one, and so on. As it can be guessed easily- the damage in the first bucket is the least and in the last bucket the highest.

How to Remove Late Payments?

The only way you can get the mention of late payments removed from CIBIL report is to convince your lender. You should first become punctual with your payments, and after a while request your lender to have the remarks removed. If you have been a good customer of the institution then they can certainly send an update to CIBIL, which will then update your report accordingly.

Settled Incidents   

When a borrower has a huge outstanding amount and has not made any payment in a long time then the lender could tag them a defaulter. Eventually, the lender may decide to propose a settlement, in which the they are willing to close the account once and for all by settling for an amount that is lower than the actual pending payment.  If the borrower agrees then the ledger is closed, but their CIBIL report bears a mark of “settled” status. This is enough to raise alarms for future lenders, as it shows a lack of credibility.

How to Remove “Settled” tag?

To get the “settled” tag removed from your CIBIL report the first thing you have to do is contact your bank, and let them know that you are willing to pay the remaining amount of the loan that you had closed with a settlement amount. If the lender agrees then once you have paid the amount you can request them to update CIBIL with the new information. Once CIBIL receives the update from your lender it will update your report, which you can check for confirmation after 30-45 days.

Apart from getting bad remarks removed from your CIBIL report there are many other things that you can do to improve your score.  Here is how to increase CIBIL points

1) Variety- If you only have taken secured loans in the past then you can get some unsecured credit, such as credit cards to increase your score. Variety in credit is always a score booster.

2) Lower Credit Utilization- Do you often use your credit cards to their maximum limits? High credit utilization can lead to lower credit scores. Ideally, you should not use more than 30% of the credit provided to you on the cards.

3) Limited no. of Credit Cards and Loans- When people use multiple credit cards and take loans frequently then lenders can take them for credit hungry individuals. Thus, this kind of behavior should be avoided.

Taking bad credit history off your credit report is certainly a great way of boosting your score, and improving your chances of loan approval in future. Still, it is far better to avoid such situations rather than dealing with them later.

Why is it necessary to check your Credit Report?

The information in the credit report can have significant effects on one’s financial life. It determines how much money we can borrow to pay for our dream home or car and how much interest is charged on those borrowings. These days, insurance companies also offer discounts based on a person’s credit health. Credit reports even affect one’s job prospects as many employers use it to assess the reliability of the prospective employees.

You should review the report periodically to make sure that the people who are accessing it to take decisions that affect you, get a true picture of your creditworthiness. Flawed credit reports have damaging consequences. It brings down your Cibil Score and costs you a lot of money in the long run in the form of high interest rates.

Here are some reasons why you should make it a practice to check your report once every year.

You are planning to apply for a loan

If you are planning a big purchase and thinking of taking a loan for it, you should first check your credit report before approaching any bank. It will give you a fair idea of your credit standing and provide you clues about you chances of loan approval. A credit report affects the amount of money that you can borrow and the interest rates that you have to pay on those borrowings. If you have a history of late payments, high outstanding balance or collection accounts then the chances of rejection are high. In this case you should first work on improving your credit. An unnecessary inquiry on the report which is unlikely to qualify you for loan will further bring your score down.

 Your loan application got rejected

If a bank denies you loan because of bad credit, you are entitled to a free copy of your credit report from the bureau from where the bank accessed your report to evaluate your credit worthiness. You must request for the report within 60 days of denial. Analysing the report will help you identify the reasons for rejection. It will provide an insight into what habits you need to change to improve your credit picture. If you’ve been handling your finances responsibly and the denial came as a surprise then the credit report may help to uncover inaccurately reported information.

You are looking at rebuilding credit

If you want to recover from your past credit problems, reviewing the credit report is a good place to start. Your credit report contains data about most of your financial accounts. Analysing how much debts you owe and how much is past due will give you a clear focus on how to fix your credit. You will be able to nail down exactly which factors are bringing your score down.

Ensure accuracy

Just as you keep a check on your credit card bills and bank statements to ensure that everything is in order, in the same way you should check the credit report periodically to ensure it is free from any errors. If you find any inaccuracies regarding the amount you owe or any other payment details submit a dispute immediately. Delays in resolving these issues can have a serious effect on the credit history.

 Check for identity theft

Attacks on information databases and identity thefts have become very common these days. You may not even realize that your identity has been stolen for months and years if you do not keep a check on the credit report. It is better to be vigilant about your credit early on because an identity theft can bring an unexpected dip in your credit score and ruin your ability to get loans in the future. Studying the report will help uncover any unusual activity or misuse of identity. If you find accounts that are not yours or transactions that are not made under your knowledge then you may be a fraud victim. Report it to the credit bureau immediately.

Co-signed a loan

If you have co-signed a loan with a family or friend to help them obtain finances then you should keep a close watch on your credit report. Any late payments or defaults on such loan will appear on your report. Periodic checking will warn you and expose problems before a serious damage occurs.

It is better to play safe than regret later. So mark your calendar or set a reminder to check your credit report at least once every year and shield yourself from a lot of risks.