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Rebuild your CIBIL Score after bankruptcy

Bankruptcy is the legal term for referring to the state of being unable to pay back your debt. If you borrowed money from creditors, whether a bank loan or a purchase done on EMIs, and have been unable to repay that amount, you are declared bankrupt. This is usually more of a legal requirement and the cause behind such inability could be anything. Maybe you have been in an accident rendering you unable to earn enough to make ends meet, maybe some other emergency expenses forced you to redirect your savings or some other misfortune happened - like a loss in business or being fired from a job. Irrespective of the reason, when you file for bankruptcy, it directly and massively impacts your CIBIL score.  

Your CIBIL score is a three-digit number, ranging from 300 to 900, that depicts your creditworthiness. It is a key parameter in your future loan application approval. If you go bankrupt, your CIBIL score obviously decreases. The decrease is supposed to hint at the fact that you don’t have enough funds to be able to honour any payments you have due to present or prospective creditors. This report of bankruptcy is reflected on your credit report for a period of up to 10 years. It means that if you go in the financial market as a borrower, you will end up getting hostile terms for the repayment. In other words, you might end up paying more to borrow the same amount.

Of course, that puts any future plans of securing credit at risk, too. But going bankrupt once does not have to necessarily mean that you cannot have a decent credit report or CIBIL score.

Here are a few steps and hacks you can undertake to be able to improve your credit report.

Keep reviewing your CIBIL report

This goes without saying: Check CIBIL score regularly. Make sure the information it contains is accurate and error-free. Then study it minutely for your strengths and weak points. The latter are the areas you can focus on for improvement of your credit report card.Apply for a secured credit card

The logic is simple: you have to start with small, secured borrowings. Get a credit card which is secured against a fixed deposit, as a certain percentage of the fixed deposit amount. The benefits are multiple: your CIBIL score will improve, you will stay within the credit card spending limit, regular credit card payments will ensure your score stays robust. Any default or late payment can be detrimental, so be very careful about timely bill payments.

Pay your bills on time

It seems very fundamental for someone who is trying to stabilise or improve their credit report. Your payment history makes up a significant proportion of the CIBIL score.

If you are wary that you might default on a payment or forget about it, you can make use of the banking services for the payments if you give them a standing order.

Borrow a car loan

Once a year or two has passed since you filed for bankruptcy, you should consider a borrowing that can be easily paid off. Car loan for a car that is affordable sounds like an ideal candidate for this purpose. Just like the previous point, the idea is to show that you are now capable of paying your credit and honouring all the financial commitments you have in your portfolio. So, consider getting a car loan on affordable terms and tick two important things off your checklist: rebuilding your credit score and buying your dream car! When you successfully repay the loan, you will have made a solid case for yourself: that you are financially sound enough to borrow and repay consistently.

A word of caution

Before diving into any financial transaction, once you’ve already been declared bankrupt, it is important to measure each step. So we have a few words of caution for you. One, note down the payment and repayment cycles of your current credit and bills. Make timely payments and stay within your credit limits. Any reckless financial spending can have a damaging impact at this point.

Second, do not make the mistake of closing an account you already have. On the surface, it looks like a good idea to close a credit card to prevent yourself from rash transactions, but shutting down a credit card reduces the amount of credit available to you. Instead, get your credit limit revised if you fear rash spending. Don’t get rid of it altogether.

Bankruptcy can be an ordeal and a financial nightmare. But with patience and some informed choices, it is possible to recover from the damage to your credit report and CIBIL score. Ensure timely payments, secure small and secured loans, repay regularly, stay well within your credit limits and soon you will have an impeccable CIBIL score. Financial Health Check Report available on Finserv MARKETS can also provide your credit score by screening through various factors like your credit history and creditworthiness, along with providing recommendations to maintain a financially healthy profile.

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