The need for credit is a necessary precursor to fund major expenses that come up later in life like buying a home or opting for higher education. A credit report that is unfavourable can make acquiring credit a lot more challenging. A negative report occurs as a gradual process which is a result of a number of reasons. Regardless of the ‘why’, your credit score will remain low. On most occasions, a negative report can be a consequence of poor financial decision-making. However, in some cases, the fault is not of your own. It could be in the form of unsettled loan accounts with lenders, or multiple defaulting entries by the bureau. Whatever the cause for the negative credit report may be, it’s up to you to ensure that the negative reports are resolved.
Not rectifying your credit report could have a number of damaging consequences with respect to borrowing later on in life. Not least among them is that it will make you appear risky to lenders. A favourable credit score, on the other hand, has a number of advantages aside from easier loan processing. You will be favoured among lenders with lower interest rates on future loans to finance your home or car. To help get your negative credit report rectified in the shortest time possible, we’ve devised a number of strategies for you to consider.
Once you have paid off your loan in full, make sure you close the loan account. Closing your loan account depends on the type of loan, so you should immediately check with your bank or lending institution about the specific process. One way to check whether your loan account is indeed closed, is to wait for the status on your credit report after making the final payment. This is a very crucial step as there are numerous examples of people forgetting to cancel their credit cards only to later find that their old card has accrued some fines. These fines will increase overtime, due to compounding interest, till they are finally cleared. These non-paid dues will have a negative impact on your credit report.
It’s important to stress on the fact that you should pay your credit card dues on time and in full. A lot of credit card holders make the mistake (for some it’s a habit) of making minimum payments every month. This is a big mistake. For example, if your credit card bill is Rs. 10,000, pay off the entire amount as soon as (before the last date) you receive the bill. Paying the full amount is a strong indicator to credit agencies that you are a trustworthy person. If you consistently make full payments on your credit, you will see a steady rise in your credit score over a period of time.
If you have a habit of using credit cards for any and every purchase, try and use only 30% of the available credit limit. Many borrowers make the mistake of fully utilizing their credit card every month. For example, if your credit limit on your card is Rs. 54,000, you make the mistake of maxing out the card’s full limit. While this might seem normal, as you’ve only spent based on the limit extended to you. But behind the scenes, the credit reporting agencies will report that you have spent all of your allowed credit. Your credit score will take a hit and as a result, you will see a negative credit report. In order to avoid this, try and maintain a credit ratio no higher than 30%. To maintain the right credit ratio make sure to do a free credit score check every once in a while.
If you have the habit of applying for multiple loans and credit cards at one go, you are doing a disservice to your credit score. There is also a trend of transferring existing credit balances from one loan or credit card to another account. Although this may give relief for the time being, in the long run, this is a really bad strategy. When you apply for any sort of credit, most banks check your CIBIL score, sometimes without even your knowledge. When the bank sees that you’ve applied for multiple loans or credit cards through multiple credit checks, they may feel that you are not creditworthy. Another issue with applying for multiple loans is that with every credit check your CIBIL score gets negatively impacted. So if you apply for multiple loans, this will lead to many credit checks, which will be acutely damaging to your CIBIL score.
Now that you have an in depth analysis about how to rectify your credit report, make sure you take the necessary steps to see a rise in your credit score. If you are looking for a loan to consolidate your debt, consider taking a Personal Loan with Finserv MARKETS. Before you get started with your net loan, make sure to check your CIBIL score on Finserv MARKETS. You will be presented with a Financial Health Check Report that gives your greater insights about your financial health and areas in your credit history that need improvement.
Ever considered quantifying your financial health in specific parameters? With the Financial Health Check Report (FHCR) on Finserv MARKETS.