Are you not making your EMI repayments on time? Do you procrastinate the payment against your Credit Card statement? These practices can easily pull your credit score down, it will not exactly put your name on a ‘Defaulter’s List’ (there is no ‘Defaulter’s List’ at a credit bureau). But, in the eyes of the credit bureau, you are one. You are a defaulter towards your credit obligations. Digital lending platforms (such as Loan Singh), banks and credit card companies report repayment performances of your loan and Credit Card dues to the credit bureau. Defaults not only reduce your credit bureau score, but also hamper your chances of getting approval for a fresh loan. The biggest reason for personal loan rejection is credit default. There can be times when your name is tagged as a defaulter, by no fault of your own. The Loan Singh Blog gives you great insights into the world of credit, loans and the piece of plastic you carry in your wallet called Credit Card. Let’s understand more about Credit Bureaus, Credit Score, its ranges, and how you can avoid becoming a Credit Bureau Defaulter.
Credit Bureau in India
There are 4 credit information bureaus licensed by the Reserve Bank of India – CIBIL, Experian, Equifax and Highmark, with CIBIL being the most prominent. They maintain your credit information which is sourced from various credit institutions. When you approach a bank or Loan Singh, for a personal loan, a hard inquiry is raised to the credit bureau. The bureau then compiles a credit bureau report which houses your credit information such as past/current personal loan or credit card, prompt payments towards loan EMIs, credit card statements, etc. You might have cleared a loan; if you have done so by repeatedly defaulting in loan EMIs, then this will reflect in your credit bureau report. The credit bureau report also contains your personal information such as your name, date of birth, residential address, PAN, voter ID number, contact number, types of credit availed, size of loan, credit limit spend, and outstanding current balance; along with your credit score.
Simply put, a credit bureau’s task is to collect and compile credit information of individuals from PAN India. Credit institutions like banks, digital lending platforms, government offices, and debt collection agencies send credit related information of borrowers to the credit bureaus. The credit bureau acts like a repository of credit information. A credit bureau has to be licensed by the Reserve Bank of India. When you approach a credit lending institution like a bank or Loan Singh, a hard inquiry is raised by the institution to the credit bureau. As a personal loan does not require collateral to avail, creditworthiness and income become the only requirements in getting the personal loan application approved.
A credit bureau does not influence the credit approval process at credit institutions. They merely provide credit information to credit institutions. To help credit institutions filter out credit deserving or risky borrowers, the bureau generates a credit bureau report aka Credit Information Report. The report contains all the credit information that the prospective borrower has availed. Also seen in the report is the repayment discipline maintained by the individual. Calculated from this information, is a Credit Score; which allows credit institutions to determine if the individual is credit worthy, or not.
Credit Bureau Report
A credit bureau report is a systematic representation of your credit information. The information includes your EMI repayments towards loans and credit cards. The credit bureau report does not include any information based on your investment or savings. The report mentions your Name, Date of Birth, Residential address, PAN, passport number, voters ID number, contact details, type of credit availed, size of the loan or credit limit, outstanding current balance, any overdue amount, number of days the payment is overdue, and its status.
As the report contains information about your credit and repayment history, it plays a key role in the credit institution’s evaluation process. It is therefore important to know what information is shared with the credit bureau.
Credit Bureau Score
The credit bureau report not only displays your credit history, but also compiles a rating/score known as Credit Score. The score is a statistical indicator of an assessment done on your credit repayment capacity. The score has a minimum value of 300, and a maximum value of 900. The higher your credit score, the better your chances of getting fresh credit from Loan Singh or any other lender. A good credit score indicates quite many things such as the timeliness of repayment, the quantum of credit you own, the nature of credit, and your overall performance while under debt. The bureau score is also a culmination of the number of times a hard inquiry was made by any lending institution.
Credit institution will not lend you credit, if you have had a history of defaults in your loan repayments. You can either be a major or a minor credit bureau defaulter. Minor defaults would include payments that were delayed, but cleared within a secondary due-date. For defaults, that go beyond an ultimatum tenure (for example – say 90 days from the due-date) are termed as ‘Late Payments’, or ‘Non-payments’; these negatively affect your credit history, and decrease your credit bureau score. It is a no-brainer, that late payments indicate a lax approach to your credit responsibilities.
Credit Score Ranges
Your credit score can fall into the following 5 categories.
Score less than 0 – A credit score of 0, or less, means you have no credit history. In this situation, it is wise to apply for a personal loan from Loan Singh; as banks are likely to reject your loan application, basis lack of credit history.
Score between 350 – 500 – A score between 350 and 500 is poor, indicating either a default in past EMI payments or excess credit utilization on credit cards.
Score between 550 – 650 – A score between these ranges is acceptable, indicating that you have been regular with your payments, and can be trusted for fresh credit. You have good chances of getting a loan approved.
Score between 650 – 750 – This range indicates that you are doing well with your finances. You should stick to your financial habits to maintain, or improve, your score. Your chances of getting a loan approved are great.
Score between 750 – 900 – This is considered as the best range for a borrower. This clearly indicates that you have been regular with your EMI or credit card bill payments. You can easily avail a loan.
Credit Bureau Defaulter
A defaulter tag, on the credit bureau report, could take years of effort to erase. It not only prevents you from getting fresh credit, but also disrupts your reputation. A good repayment history can be halted by a single default. Defaults also welcome penalties and hiked interest rates. So, be smart and disciplined to always pay your EMIs on time. The only way to avoid any credit rejections in the future is by improving your credit score; there is no other way. Never allow a ‘Written-off’ or ‘Settled’ status to remain on your credit bureau report. The more ‘Closed’ status’ the better for your credit score.
Every individual has the right to access his/her credit bureau report. You can request for your credit bureau report from the bureau website. You can check the report to understand the instances when you underperformed in your credit responsibilities. There are 2 ways through which your name could appear as a credit bureau defaulter.
Credit related default
This simply happens when you do not pay your loan or credit card EMIs, on time. In this case, you need to clear all the pending EMI payments, at the earliest. Credit bureaus, generally publish a monthly report to ensure that you clear the pending dues, and prevent your name from getting re-tagged as a ‘Defaulter’
Check if Your Name, gender, PAN and address could have been entered in a wrong format. If so, then contact the credit bureau to get it rectified. Provide valid documents as proof. In case, the issue is due to human error at the credit institution, report the same to the institution, and attach a copy of the report. Once rectified by the institution, get an acknowledgement of the same, and send it to the bureau for updating. The error could also be due to identity theft or fraud; where someone has used your details to avail a loan, and defaulted.
Improve Your Score
You can ensure a good credit score if you remember these helpful tips from us
Prompt On time payments
Make sure you do not delay when it comes to monthly EMI repayments towards your loan or credit card. Set up an auto debit feature wherein your loan EMI’s are debited from your account before the due-date.
Credit card limit
Keep your credit cards spending at a minimum – ensuring you do not spend over the limit. Pay-off your credit card balance in full each month.
Try to avoid too many hard inquiries
Too many inquiries within a short span of time can damage your credit score.
Check for credit report errors
Make sure you do routine checks of your credit bureau report every 3 months. This way you know your credit bureau report is up-to-date, with all the timely repayments well documented.