Rajan Shah, a 30-year-old professional, lost his job last year and also went through a divorce, which put tremendous pressure on his finances.
Although he understood the value of a good credit standing, circumstances forced him to start defaulting on his car loan and credit cards. He managed to get a new job and wanted to make a fresh start. But his defaults were beginning to affect his life. He was aware that he had to repair his credit score, but did not know how to go about it.
This is a common problem faced by a lot of people who, either, because of circumstances (like Rajan) or due to a lack of financial discipline, default on their financial obligations, and are looking to make amends.
Let us first understand what happens when you default on your financial obligations.
Every lender is required to share data about the repayment history of their borrowers with the credit bureau. The credit bureaus collect repayment information of all loans and credit cards of an individual or a business on a periodic basis from all types of lending institutions across India, so as to create an accurate representation of one’s credit history. Credit Bureaus provide the best objective assessment of a person’s Credit Character. Credit reports, which are a comprehensive chronicle of an individual’s credit history, are generated by credit bureaus.
If you have defaulted on your payments for any reason, your credit information report will immediately disclose this status to any prospective lender. With a bad credit report, it is difficult to get any loan or credit card from any bank.
But all is not lost. You can re-build your credit history.
To start re-building your credit history, begin by paying off the re-structured debts. But remember, it is a slow process. Once you regularly start paying your debts, with the passage of time, your credit history will improve. Remember to always pay all your bills on time. Paying bills on time creates a good repayment history which is important for your credit score.
You can also start adopting measures which enable you to rebuild credit history, like taking secured credit cards, which are given against the security of your fixed deposits. This can help build positive credit history and can be a valuable tool if you’re having trouble getting approved for more traditional loans or credit cards.
You can also opt for secured personal loans where an asset is required as collateral. Stick to your budget plan. Check your expenses and do not increase your credit exposure to immediately repay the present loan to salvage the situation.
If you are considering obtaining a loan in future with low interest rates, you must have a healthy credit score. You could also get help from specialized credit counselling or credit repair agencies. These agencies assist you in negotiating with your existing lenders and re-structuring your debt, which can be both curative and preventive.
Rebuilding your credit doesn’t happen overnight. It takes time to re-establish a good payment history, pay down the debts you may have and let negative information cycle off your credit report. Whether you choose to repair your credit yourself or with the help of a professional, understand that it is a slow and continuous process.
Credit Triangle is a one-stop solution for all your credit and finance needs. We help you with credit health management, repair and improvement.