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04 Nov
  • Editorial Team
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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?

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.

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.

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.

Removing your name from the credit defaulters list

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.

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.

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.

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.

Maintaining your improved score

Removing your name from the credit defaulters list is the first step, the second step is to maintain it.

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.

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.

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.

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.

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.

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.

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.

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!

Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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