November 7, 2024 · 10 mins read
Santosh Kumar
Has it ever occurred to you that any loan that you apply for usually gets approval within a few minutes nowadays? Earlier, we used to wait for atleast a few days after submitting our financial documents, and the lender's credit card or loan department came back to us with the acceptance or rejection for the loan. It has been made possible by connectivity through the CIBIL score of each individual. The Credit Information Bureau India Limited has made it easy, fast, and reliable to check a person's credit capabilities by summarising their overall credit health under one roof.
Financial organisations just check the credit score of a person and their current income proof, and they can easily assess whether the person can be provided with the desired loan amount. The best part about having a good credit score is that the amount and tenure of the loan can be negotiated easily with the lender. In contrast, if you have a bad CIBIL score, then it is possible that you might not even be eligible for a loan or a credit card.
As lucrative as it might sound, it also comes with some bad effects on your eligibility for a loan. A CIBIL score can also be a roadblock in acquiring a loan, as there might be a black spot on your CIBIL score file, which might lead to some issues in future. There can be multiple reasons for a person's CIBIL score to be negatively impacted, making it difficult for them to get a loan in time.
If a person misses any payments for a loan he acquired, they will be added to the CIBIL defaulter list. The lenders and financial organisations use this list to determine the exact creditworthiness of a borrower. Usually, when the person gets on a defaulter list, it is because of multiple missed payments, but if the loan amount is higher, their name might also be added.
Understandably, making payments on time is sometimes not possible, and it is not always the fault of the borrower when he might have to deal with some unforeseen circumstances. There might be issues like Job loss, medical emergencies, business failure, theft, divorce alimony, etc., which might lead to an on-time payment failure, and that can lead to the person being added to the CIBIL defaulter list. This impact might seem temporary and small at first, but it could lead to bigger problems in the future. If a person cannot make a payment on time for an existing loan, the next lender might be hesitant to provide any loan to him. This is like a cycle of finances, which starts from having money problems and being able to pay off the loan instalment and then having an issue acquiring a loan in the future, leading to more money problems.
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There are multiple negative impacts of having your name added to the CIBIL defaulter list, which can be very harmful in the long run-
1. Bad credit score - This is the biggest issue that one might face after being added to the CIBIL defaulter list. Any missed payment will be a step towards a bad overall credit score. The credit score is the main factor when calculating a person's creditworthiness for any organisation. If there are multiple missed payments and the person is added to the CIBIL defaulter list, the credit score will be directly impacted. A bad credit score can lead to a difficult financial future for a customer.
2. Additional fees - If a payment is missed, the lender or the bank usually levy an additional late payment fee or a debit interest. This fee will add to the agony of having financial problems. In case a person misses multiple payments, they might have to incur these fees and getting added to the defaulter list makes it much more important to pay the whole amount within time. If an instalment is not paid in time, then getting added to the CIBIL defaulter list might create an urgency to repay the loan with the added fee or interest charges.
3. Loan Cycle - If a person is unable to pay off a loan on time, chances are that they are going through some heavy financial difficulty. In case their name is added to the CIBIL defaulter list, they might search for an alternate way to pay off the loan. In such scenarios, people take a separate loan at a higher rate of interest to pay for the previous loan. This makes a loan cycle very costly in the long run for a person. You might be paying double or triple the rate of interest on the same loan amount. Hence, to avoid this loan cycle, it is advisable to always be on top of your finances.
4. Legal issues - The creditor might even try to sue the borrower in case there are multiple missed payments for higher amounts, which could lead to a larger issue in the future. In case there is a missed payment, and a person gets into a legal battle with the lender, they might even be blacklisted from any future loan options and might even have to file for bankruptcy which will be the worst-case scenario for anyone.
5. Loss of time - Once a person is added to the CIBIL defaulter list, it is usually seen that removing the name from the list or altering it takes up a lot of time and patience. Removing the name is not an easy task and requires much accurate knowledge. It becomes very tedious for the person to be able to remove the name from the list while it is simultaneously impacting their credit capabilities.
Read More:: Is 720 a Good CIBIL Score?
Now that we know of all the negative and long-term impacts getting your name added to the CIBIL defaulter list might lead to, it is important to understand how to remove that name from the list. It requires a lot of patience as it does not get cleared overnight and also, some exact points need to be encountered to clear the name from the list. Here are some of the ways to avoid getting on the CIBIL defaulter list-
1. Paying off Dues - This is the single most important factor in getting a clean slate; even if you have missed payments on a loan, you need to make sure that the remaining amount is paid off as soon as possible. Some people might start avoiding their lenders and think that the problem has passed but the real problem is its impact on the credit score. There are multiple ways to pay off an outstanding debt and the borrower must choose the step which is best for them. Many firms provide you with financial assistance. In such cases, you need to ensure that taking another loan to pay off an existing loan is never a good idea, so it is advisable to consult a financial assistance firm to get your finances sorted. Usually the bank provides a payment plan to the borrower in case they cannot pay the money in total in one go.
2. Regular review of the CIBIL score - It is important to keep your CIBIL score in check to avoid any misses. Many factors affect the CIBIL score of a person apart from a missed payment, like credit utilisation, credit enquiry, etc, which also contribute to a lower CIBIL score. You must always check the latest CIBIL score report every month to make sure that none of your payments have been missed in a month. If in case you find an anomaly where the information seems incorrect, you can contact the Credit score authority and get the information corrected on priority.
3. Keeping the Credit Limit in check - The credit utilisation should always be kept in mind while applying for any loans or credit cards. If people utilise about 30-35% of their overall credit limit, they will be in the safe zone. Any person with a credit utilisation of more than 50% is considered to have a negative impact on the overall credit score.
4. Credit enquiries in a month - If you want to see the latest offers on credit cards from different banks and what kind of limit you would get, then this step is an important reminder to you. If we apply for more loans and credit cards in a month than required and the application is incomplete, it can also negatively impact the CIBIL score. It is advisable to check the current month's enquiries before finalising any application and always try to keep a check on any wrong information in the credit report about an enquiry that you might not have made and make sure that the correct information is provided in future.
Read More:: What is the Use of CIBIL Score?
People usually make payments on time and think that their future loan applications are secured, but the truth is that in the financial world, a credit history is as important as a current payment made on time. It is important to keep a regular check on the CIBIL credit report to make sure that accurate information is being added to your file, and at the same time, it is important to make amends as soon as possible if you can see any last month misses making an impact on the credit score. It is also important to note that any positive changes to the CIBIL score can be achieved over months, and the score will not improve by a large number in the first month itself, so please be patient.
1 - Can the credit history of a person be deleted?
No, the CIBIL credit report cannot ever be deleted for a person as it is always kept on record from the beginning of their professional journey. Even when filing for bankruptcy, the credit file still remains for the person.
2 - How many years will it take to remove a missed payment from the CIBIL report?
The CIBIL credit authority keeps a record of the past 7 years of a person's credit report. It includes all the misses and defaults in payments and every other important financial detail.
3 - Can a job change impact my credit score and add me to the CIBIL Defaulter List?
No, even if you change your job to a lower-paying one and can still manage your payments on time, a job change will not affect the CIBIL credit report in any way apart from the details of your current employer.
4 - How can we alter any incorrect information on the CIBIL credit report?
If you see any incorrect information on your CIBIL credit report, please contact the CIBIL credit authority as soon as possible and raise a dispute with them. It is important to present the correct figures while raising a dispute with the CIBIL authority, as these changes cannot be made again and again on a person's credit report.
5 - Does a CIBIL defaulter list name mean that the person cannot get a loan in the future?
No, even if a person has a bad credit report, the person still can be eligible for a loan from a financial institution. It depends on the severity of the negative credit reporting; if there are only a few missed payments, then a person could acquire a loan at a higher rate of interest, but if there are multiple missed payments, then it might become difficult for them to acquire the loan of a desired amount.
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