Removing Your Name from the Credit Defaulter List

With digitization and growing awareness, there has been an increased uptake in credit by consumers. Unfortunately, there has been an associated rise in the number of credit defaulters too.

Banks and financial institutions are constantly facing trouble due to credit defaulters; not only does this hamper their business but it also leaves the borrower with a negative credit score. A low credit score will affect your chances for a loan in the future, so it is advisable to maintain a positive credit score.
Additionally, credit bureaus, like CIBIL etc, maintain a credit defaulters list that has a list of defaulters along with details and information about the borrower. If your name is on the credit defaulter list, you could be denied loans in the future.

Credit rating agencies play an important role in the financial system. The agencies gather information about all the borrowers and update the same on the credit defaulters list as and when there is a default on the part of the borrower. The agencies provide information about the borrower to the lenders with an to aim to control loan defaults in the banking system.
 

Why Would your name be on a credit defaulters list?

1. Technical Error

   Get in touch with the credit agency and check the defaulters list. If your name is there, it might be a human or technical error. Since credit reports include all the information available about the individual, a minor mistake in an input, on the part of the data entry operator, can lead to your name on the list of credit defaulters.
    

2. Incorrect or incomplete reporting

   Although this is rare, sometimes details about your loan status may not be properly recorded, or incomplete details might be provided by the financial company or bank. This could lead to your name being on the defaulters list.
    

3. Loan Default

   Incase of actual default of loan EMI or credit card payment, your name will be on the credit defaulters list. This happens when you officially default on the loan, the information is correct and has been reported by a bank or financial institution to the credit rating agency.
    

How to remove name from CIBIL defaulter list?

1. Determine the cause

   To begin with, determine the reason behind this. It could be due to one of the three reasons mentioned above. A technical or human error can be corrected by contacting the bank. In case of an actual default of the loan, it is essential to clear the dues with your financier and then contact the credit bureau and take necessary actions to remove your name from the list.
    

2. For human error

   You simply need to contact the credit rating agency and provide them with photocopies / scans of relevant documents that can be used as proof. The information will then be rectified and your name will be removed from the list.
    

3. For incorrect reporting:

   In case of incorrect information made available, you need to contact the bank or financial institution and clarify the issue. You may require to give a payment acknowledgment receipt, or a NOC as a proof. A loan closure certificate is also required in certain cases. These documents need to be attached as a proof and sent to the rating agency to clear your name from the list.
    

4. Loan Default Cases

   In an official default of loan, you need to settle with the bank and wait for a month or so. First of all, clear all pending EMI payments or loans. The first step to remove your name from a credit defaulters list is to clear all the payments. Once this is done, wait for sometime as credit rating agencies take a certain time period to refresh the reports.
   
   If the reason is human error or technical error and the bank does not take corrective action after you send them the proof, in this case, the best option is to write to the bank as well as the financial institution. This will bring to notice the error and the need to take corrective action immediately. After doing this, if you do not receive a satisfactory response within a period of thirty days, write to the Bankers Ombudsman and seek a solution for the same.
    

How you can maintain your credit score after getting your name removed from loan defaulter list?

1. Periodically check the credit score

   Regularly check the credit score so as to ensure that your name has not entered the list again. This activity may be done every few months to be on the safer side.
    

2. Set up payment reminders and pay EMIs on time 

   Many times it may happen that you forget to pay your EMIs on time. In that case, it is advisable to set up reminders for yourself. Else, some Banks & NBFCs do send reminders in an email or a text message when the payment is due - do pay attention to these communications.
    

3. Reduce the amount of debt you have 

   Although this is easier said than done, lower debt will mean timely repayment and a positive credit score. If you have liquidity at hand, try and prepay your loan, you can also pay off the credit card bill in advance. Do not wait for the credit period to end, instead reduce the amount of debt as soon as you can.
    

4. Pay off debt, instead of moving it around: 

   Debt comes with a responsibility to be repaid. Although it also has the facility to be moved around and converted into another debt. This circle does not end unless it is paid off. It is advisable to pay off the debt instead of converting into another loan simply by altering the tenure. Paying off the debt will put an end to it. Avoid moving around the same debt with different terms and conditions, instead pay it off on time.
    

5. Don’t get multiple loans in a short span: 

   Do not use every possible means of financing. This will only pile up the amount of repayment. Repay one loan and then apply for another to make the repayments easier.
    

6. Do not withdraw cash using a credit card

   If you have credit cards, manage them responsibly. Do not open new credit card accounts just to increase your credit. Also, make it a point to not withdraw cash using your credit card. Every time you use the credit card, your repayment bills will only be piling up, as the cash comes at a very high interest rate.
    

7. Only seek finance if you really have to

   
   Always try to pay in full as far as possible. Seek finance if you really have to or there is no other option. It comes with a lot of responsibilities and has an interest burden attached to it.
    

8. Track your revolving credit limit:

   Keep track of the balances you withdraw from revolving credit, such as a credit card, to maintain your credit score. When the amount borrowed on revolving credit exceeds 30%, your credit score suffers greatly. If you are unable to keep this limit, you should request your lender to increase your credit limit. For example, if your credit limit is Rs 1 lakh and your monthly requirement is around Rs 35,000, increasing your limit to Rs 1.5 lakh could work in your favour.
    

9. Leave your account open

   Many people advise closing a credit card after paying off the outstanding balance. However, even if you pay off your loan, the amount that was paid late will remain on your credit report. Furthermore, credit cards account for approximately 15% of a total credit score. As a result, even if your credit card has no outstanding balance, you must keep it open to maintain your credit score. Always keep in mind that the length of your credit history is critical to your credit score.
    

10. Credit mix

    Even if you have a good enough credit score to qualify for an affordable personal loan online, you may want to consider a secured funding option. The reason for this is that having a debt portfolio with a mix of secured and unsecured loans can help you improve your credit score significantly.
     
    Having your name on the credit defaulter list is not the end. Do not panic if this situation arises. Check how you got there and take immediate steps to come out of the situation. You can achieve a positive credit record once you have cleared all the dues!
     

Disclaimer: This post was first published on 4th November 2016 and has been updated for the latest information, freshness, and accuracy.