How To Improve CIBIL Score After A Payment Default?

How To Improve CIBIL Score After A Payment Default?

Steps to Improve/Increase Your CIBIL Score Immediately


Your CIBIL score plays a vital role in your financial life. From taking loans to getting a new credit card, lenders will check your CIBIL score to determine your creditworthiness. If you have ever defaulted on loan repayments or credit card bills, your CIBIL score is bound to take a hit. However, the good news is that you can take steps to improve your CIBIL score even after a payment default.

Understanding How Payment Defaults Affect Your Score

When you miss multiple loan or credit card payments, it gets reported to the credit bureaus as a "payment default". This indicates you have failed to honor your payment obligations. Consequently, it has an immediate negative impact on your credit score. The higher the amount and longer the default, the bigger the drop in score.

For instance, if you miss 3 consecutive credit card bill payments, your score could instantly drop by 50-75 points. In case of bigger defaults like a car loan or home loan EMI, the drop could be 100 points or more.

So payment defaults make it difficult to get any kind of credit or loan approval in future due to the perception of higher risk. But if you take corrective measures, you can gradually restore your creditworthiness over time.

Step-by-Step Guide To Improve CIBIL Score After Default

Here is a step-by-step process to improve your CIBIL score if you have previously defaulted:

1. Repay the Default Amount At The Earliest

The first step should always be to clear the pending loan or credit card dues at the earliest. This applies whether it is an NPA, written off account, settled account or even closed credit card. Repaying removes the default tag against your name.

Simple Ways Improve CIBIL Score After Settlement


In case of inability to repay in full, try to arrive at a one-time settlement with your lender for the best recovery. The quicker you settle dues, the faster your score starts recovering.

2. Continue Making Timely Repayments

Once you resolve the default, it is equally crucial that you continue making timely repayments on all other existing loans and credit cards. This establishes discipline in repayment behavior which helps improve your score gradually.

Be sure to pay at least the minimum due amount before the payment due date every month without any delays. Setting payment reminders can help avoid missing payment dates.

3. Limit Fresh Loan Applications

As a rule of thumb, one must minimize applying for fresh loans or credit cards close to the period of payment default. Several loan applications tend to get negatively interpreted as credit hungry behavior by underwriters. Hence, avoid applying for loans for atleast 6 months post resolving the default.

4. Maintain Low Credit Utilization Ratio

Try to limit your credit card spending between 30% or lesser of the total credit limit sanctioned. This is termed as credit utilization ratio and having a low ratio indicates credit discipline. For instance, if you have a total credit limit across cards of ₹5 lakhs, then try to spend not more than ₹1.5 lakhs per month.

5. Grow Your Credit Mix

Having a good mix of both secured loans like home loan or auto loan along with unsecured loans like personal loans and credit cards helps demonstrate financial maturity. Hence, over 6-12 months, you could consider slowly applying for adding newer credit facilities as per your requirement. However, be cautious of taking excessive credit.

6. Monitor Your Credit Report

Keep monitoring your credit report every quarter to track improvement. Also check to ensure there are no errors in personal or repayment data which could affect your score. Errors if any should be immediately informed to the credit bureau for rectification. If your score is not improving as expected, analyzing your credit report will provide insights on areas needing correction.

7. Avoid Credit Repair Companies

Many agencies claim to offer guaranteed solutions to remove defaults, purge credit records or file disputes on your behalf, albeit at a significant fee. However, there is no shortcut to improving credit score beyond disciplined financial behavior. So avoid such agencies and scams promising quick fixes in exchange for a fee.

How to Remove Name from CIBIL Defaulters List?


By following these 7 steps diligently to fix your repayment record after a default, you can see an upward movement in your score over 12-18 months. Typically, a 50-80 point improvement is visible within 6 months of starting credit repair measures. Over longer durations of 1-2 years, it is possible to regain a score of 750+ depending on individual case factors.

While the improvement journey needs persistent effort, the rewards of doing so are higher odds of future loan and credit approvals at preferential rates ultimately.

Frequently Asked Questions

Q: How long does it take to improve CIBIL score after payment default?

It can typically take 12-18 months to regain a healthy CIBIL score after defaults through a planned credit rebuilding approach. Actual timelines depend on the default amount, errors if any in credit data, and post-default credit behavior. Scores tend to gradually improve as healthy repayment patterns are established over time.

Q: Does settled loan status affect CIBIL score?

Yes, settled loans do lead to a lowered CIBIL score although not as much as loan defaults. Settled accounts are marked as closed with zero outstanding but the historical delinquency associated with the account continues to negatively impact scores. Timely repayments post settlement help demonstrate changed behavior thereby slowly improving score.

Q: Can credit cards help build CIBIL score after default?

Used responsibly, credit cards can help rebuild credit score even after defaults through maintaining low utilization and making on-time repayments every billing cycle. Additionally, having a good mix of both secured and unsecured loans furthers financial maturity. Hence, a new credit card 6 months post resolving past dues helps accelerate overall score improvement.

Q: How much does CIBIL score increase after loan EMI is paid?

For loan defaults, every on-time EMI repayment helps boost score because it demonstrates changed discipline. If no fresh defaults or loans are undertaken, an approximate increase of 30 points is visible every 6 months through timely repayments accompanied by low utilization on credit cards. Higher EMI amounts repaid without delays lead to faster score improvements.

Q: Does CIBIL score improve after loan closure and credit card closure?

Voluntary closure of loans or credit cards does lead to a minor decline in CIBIL score due to the account closure. However, over the long term, reducing the total debts results in lowered credit utilization which helps increase score. Further, not having any fresh loans or card applications for 6-12 months allows score improvement through the positive impact of other existing accounts’ timely repayments.

Conclusion

A payment default can severely impact your CIBIL score resulting in loan or credit approvals becoming difficult. However, by following a planned approach of repaying overdues, maintaining repayment discipline across other existing debts along with monitoring your credit report regularly, it is possible to gradually rebuild your score within 12-18 months.

Stay committed through financial prudence and perseverance to regain a robust CIBIL score despite past defaults. The long-term benefit makes it a worthwhile effort that facilitates easier loan approvals in future at better terms ultimately.

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