September 17, 2024 · 11 mins read
Santosh Kumar
A CIBIL score of 300 means that the individual has terrible credit and is regarded as posing a high risk to lenders and other financial institutions. This score reflects the delinquency of accounts within an individual, which may involve defaults and many loans that are not paid. Due to their low CIBIL score, these cannot be availed to finance products, and hence, they cannot even obtain a loan, a credit card, and sometimes bye-pass leases. Likewise, people with this score are likely to be charged more on any advanced credit and are proffered with worse conditions, which might restrain their financial habits.
In spite of these, the CIBIL score of 300 is not the end of the line. Any credit rating, irrespective of how bad the same is, can be improved with the necessary steps taken and hard work put in place. This statement may take a bit of time and patience, but restoring your credit standing and being free from debts is very much attainable.
This blog provides a detailed blueprint of measures people can undertake to alleviate their present financial management conditions. It offers a comprehensive assessment of the aspects that resulted in a poor CIBIL score and a clear 'how to' on how the CIBIL score can be raised. This guide systematically tackles everything from finding out why your score has been low to strategizing how you can rebuild your credit.
Before any attempts to improve the current low CIBIL score are initiated, it would be essential to know what the cause of the low score is. While a CIBIL score of 300 can be regarded as abysmally low, it also indicates that several possible problems have been accumulating over time. Determining those problems can go a long way in instituting relevant recovery policies. Below are some of the reasons why a CIBIL scorer may be low:
Payment history has been proven to be one of the most crucial determinants of the credit score. Along those same lines, consistently defaulting on payments on credit cards, loans, or any other form of debt will sharply drop the scores. There is an extent to which even one late payment may dampen one's creditworthiness, even in cases when that information has not been reported to the Bureau. The longer the delay in making payments, the more negative the effect on the score becomes with each delay. Additionally, reports of registered delinquent payments can last on a person's credit report for quite a few years and will keep bringing down the score, although the debt may have been paid.
Read More: Get Loan with Low Cibil Score
This is simply the percentage of credit that has been utilized against the clean credit limit offered. High credit utilization, such as maxed-out credit cards, use of payday loans, and any other forms of high balances equally, believably explain the low credit score among the borrowers. Credit utilization should ideally be below 30% of the available credit limit. When this ratio exceeds 50% or more, it sends a message about the inappropriate use of credit and the inability of an individual to repay the additional debts, which can result in a lowering of the credit rating.
A loan defaults when a borrower obliges to a repayment term but fails to repay the money according to the agreements made with the creditor. It is a punch in the face standing for any existing or potential loan which should be avoided at all costs, be it a personal loan, home loan or even a car loan, when one defaults because the effects of the loan default on the credit score and its history are devastating and unsettling. Penalty defaults serve to remain in the books of the Fert Auditor such that future lenders will see the goodwill history of the borrower as an unfulfilled contractual obligation. It makes it almost impossible to get new credit, and it plays a major role in a low CIBIL score.
Read More: Tips to Improve Your CIBIL Score Fast
Hard inquiries occur when a lender confirms through a credit report when issuing credit such as a loan, credit card, or other credit product. It has been observed that one or two hard inquiries do not produce any drastic effects. They also indicate borrowing pressure within a very short period, which depresses the credit degree. Too many credit applications could mean that this person is in urgent need of cash or that they are in too deep and are likely to outstretch their finances, which is a cause for lender concerns. Such inquiries have been recorded in the report for almost two years, and they cumulatively lead to a low CIBIL score.
In as much as the above points represent the commonly known factors for the low credit score, other factors can also be contributory. These include:
1. Settled Accounts: An account is considered "settled" when the borrower and lender negotiate, and the borrower pays less than the total amount owing, which helps to close the account.
2. Collection Accounts: Collection accounts arise due to unpaid accounts, and the company has resorted to sending them to third-party debt collections, which could hurt one's credit score.
3. Public Records: These records also include bankruptcy, lien, and judgment records, which will be kept in the credit report and greatly affect the credit score.
By examining and determining the causes of any low score reflected in the credit report evaluation, the person can develop a focused strategy to tackle the issues at hand and commence the recovery of their credit.
Read More: How to Improve CIBIL Score after Default
When the score falls below the required standard, and there is a need to up the CIBIL, one of the basic things to do is to examine the credit report to look for errors. Even the tiniest of errors in a credit report can cause such adverse effects on a credit score. Hence, all information must be correct and up to date. Below is a detailed process of checking a credit report, including what to do where there is a mistake, with an accompanying example, why it is necessary and why it is important to do it.
The first action you should take is to request a credit report from a known credit bureau. In India, this can be done through agencies that include CIBIL, Experian, Equifax, or CRIF High Mark. Once a year, each Bureau permits members to receive one credit report for free, thus enabling members to check their credit. When a low score has indeed been diagnosed, it is recommended to conduct an inquiry regarding several bureaus, as some agencies may have this information in slightly different ways.
Thoroughly Review Each Section of the Report Once a credit report is acquired, every portion has to be scrutinized thoroughly. A credit report can have these sections: Personal Information: This section encompasses data such as an individual's name, address, age, telephone numbers, and other contact details. Errors in this section, such as a name in the wrong format or an address that does not belong to the individual, could be very frustrating and cause misreporting to occur.
1. Accounts: This section comprises the details of all active and closed accounts that the person currently holds in favour of credit institutions, including mortgages, credit cards, and loans. It gives the credit limit, balance due and how regular the individual is with payments made regarding that specific account.
2. Public Records: This segment gives personal information regarding the bankruptcy, tax liens or judgments against the subject.
3. Inquiries: Here, the hard inquiries made by the various lenders when one sought credit are displayed.
Read More: CIBIL Vs Experian
If any mistakes or inaccuracies have been discovered, the person must step into action as soon as possible. Here's how to raise a dispute:
1. Evidence gathering: This involves collecting any pieces of evidence that validate the fact that an error has indeed occurred. This may include loan documents, savings account records, and even communication with a lender's staff.
2. Dispute the Facts: Locate the Bureau that issued the report and engage with it. File a protest if necessary. This procedure is often done through the Bureau's website or by posting the document to it. Most bureaus require a dispute form to be filled out along with all the evidence pertaining to the mistake.
3. Make a Follow-Up: If the person has filed the dispute, the credit reporting institution must assess whether the claim is defensible or not. This is usually done within thirty days or less. During these days, the Bureau will contact the lender or creditor to confirm the information already collected. It is crucial to follow up to coordinate activities and ensure that the problem is being solved.
Consideration of the Credit Report that Has Been Corrected: Obtain a copy of the credit report once again to verify that everything is correct in the report. Ensure that the report given after rectifying the errors shows significant developments, and the credit rating achieved should also have normalized greatly.
Read More: How To Read Your Credit Report
At this stage, one does not need to take the help of credit and explore avenues for borrowing more. Many credit inquiries, one after the other in a short period, can further reduce one's score. Instead, concentrate on repaying the existing credit taken.
One option to rehabilitate one's credit is to use a secured credit card. This card requires the borrower to pay a certain amount of money as a deposit, which is used as security and gives the card issuer a low maximum limit. With sensible, limited use of a secured credit card, where you buy only a few things and pay them off each month, you gradually improve your credit score.
Even good behaviour towards payment of debts will require time, but your CIBIL score will keep improving. If possible, ask a trusted family member with a good credit history to make you an authorized user of their card. These loans are meant to pave your way into loans. Paying them back will help you positively in your report. Another thing that figures in your score is the length of any credit account. Keep older accounts open even if you do not utilize them very often.
Read More: CIBIL Score Role in Loan Application Process
The importance of checking your credit from time to time must be stressed more. Watching the score regularly will help you remain hungry for improvements and catch any hiccups before they escalate and become issues. Credit monitoring options are freely available, or you may even pay for services that will give you more information.
If you feel stuck in the credit rating-improving scenario and there seems to be no progress, you might want to consult a credit counsellor. These specialists help people get out of debt by providing debt relief options, but they don't really tell how they can get into debt in the first place.
Read More: How Students with No Income Can Get a Credit Card
How long does it take to improve my CIBIL?
Recovery time is contingent upon factors such as one's spending discipline; however, with sustained effort, one can begin witnessing recovery within 6 months to a year.
I want to know if I can get a loan with a CIBIL score of 300
It is doubtful. Most lenders rate a score of 300 as highly risky. Other options, such as secured loans, will probably have to be exhausted or the score improved before new credit is sought.
**After paying off my credit cards, will I be able to use them again, or should I close the credit cards? ** Not quite. Remember that ceasing to use old credit cards will shorten your payment history and negatively affect your credit score. Such cards are better left unused rather than being cut off.
How often should I check my CIBIL score?
This is to avoid computer literacy. Apart from the basics of checking, the score is thoroughly reviewed at least once a quarter.
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