Get the Tata Capital App to apply for Loans & manage your account. Download Now

Blogs

SUPPORT

Menu  
 

Tata Capital > Blog > Credit Score > How To Improve CIBIL Score After A Payment Default?

Credit Score

How To Improve CIBIL Score After A Payment Default?

How To Improve CIBIL Score After A Payment Default?

According to the Indian Express statistics, payment default touched Rs. 6,742 crore by December 2024. This indicates the leniency of bank holders towards their credit cards and loan EMI dues. However, a payment default isn’t just a 1-time hit. If the credit bureaus observe a continuous pattern, they report it in your credit history file. Thus, a payment default directly impacts your CIBIL score. A low credit score means a reduced chance of loan approval and favourable loan terms. This can hamper your financial freedom and future stability.

In such a case, one might wonder how to improve the CIBIL score after default.

This blog discusses the implications of payment failure and how to improve the credit score once affected.

How Can I Improve My CIBIL Score After Default?

The credit score takes a huge hit and impacts your future loan application ability. So, if you want to know how to improve your CIBIL score after default, here is how you can do it:

1.    Maintain a Clean Repayment Pattern

Sometimes, people choose unnecessary credits and then fail to repay the amount.

  • Before applying for the loan, see whether you need it.
  • Check whether you will be able to repay the EMI or the minimum payable amount on time. This will help create a clean credit report for the future.
  • In such a case, a single payment default will not create a huge impact.

2.    Maintain a Low Credit Utilisation Ratio

Stabilising your credit utilisation ratio is important to improve your CIBIL score.

  • Sometimes, credit card users exhaust their limits without considering their latent impact.
  • Such customers do not plan their finances carefully and risk falling into a pit of unpaid payments.
  • This credit-dependent behaviour spoils your credit utilisation ratio and impacts the CIBIL score.

3.    Create a Mix of Credit Profile

Maintain a diverse credit profile in your account, especially if you are trying to improve your CIBIL score. Here’s how:

  • Instead of only keeping a loan EMI in your credit profile, use a credit card (responsibly)
  • Choose the Buy Now Pay Later feature in your bank app.
  • In this case, if you fail to pay one EMI but do not default on other dues, lenders still stay confident in your repayment capability.

4.    Do Not Apply for a New Credit

If your CIBIL score is already affected due to payment default, it would not be an ideal situation to apply for a new credit. Such untimely queries and loan applications indicate your credit overreliance, lowering your creditworthiness.

5.    Monitor Your Credit Report

Keep a close check on your credit score, and work towards improving it. Check for any discrepancies or inaccuracies. Consistently monitor your credit report to figure out if your preventive measures are working or not.

6.    Be Patient

It takes from 6 to 8 months for your credit score to improve. During this period, you should work towards continuously improving the CIBIL score, and not ask the bureaus why the score isn’t improving.

7.    Point Out Discrepancies

In case you see any faulty transactions or outdated information,

  • Contact the credit bureau to get it rectified
  • Correct the details to improve your credit usage experience

8.    Track Your Expenditure

Here is how you can keep a check on your expenses:

  • Create a weekly/monthly budget, whichever you deem fit
  • Maintain timely payments to prevent default charges and low CIBIL score
  • Sitck to the budget and don’t go overboard

9.    Turn On Auto-Debit

Automatic payment setting helps:

  • Ensure you don’t miss out on due date and have to pay additional interest charges
  • Negate the impact on your CIBIL score

Effects of a Payment Default

A default on a loan instalment (whether EMI or credit card) can result in several financial consequences. They have a long-term repercussion on your economic health, such as:

1.    Low Credit Score

A single payment default might not affect your CIBIL score. However, if the credit bureaus identify a pattern, it will impact your credit report. Your report will show that you have missed a payment, and your score will drop.

2.    Property is Seized

In cases where your loan is secured against a property, the bank has the right to seize it upon failed payment. This is commonly known as repossession or foreclosure. Afterwards, the bank can auction the property or another asset used as collateral to recover the amount.

Since your asset is seized, it becomes harder for you to secure a loan in the future.

3.    Ability to Obtain Future Credit

After repeated payment defaults, the bank sees you as a high-risk borrower. Your creditworthiness reduces, and the bank will not trust you. The chances for you to take a credit in the future are lower after that.

4.    Additional Penalty

In case of a payment default, the lender might charge additional fees or a penalty, increasing your overall outstanding bill. They can also raise the interest rate on the existing loan or involve a collection agency. The additional payment will add to your balance and make you more debt-ridden.

What Are the Benefits of a Good CIBIL Score?

A good CIBIL score ranges between 750 and 900. While having a 700 score is considered good, it can still cause roadblocks in getting loan approval. However, a 750+ score helps speed up the loan process and even reduces the interest rate. Here’s how having a good score benefits you:

  • You get a pre-approved loan from the bank with better benefits and low interest rates
  • Lowers the interest rates due to the positive creditworthiness of the borrower
  • A positive credit score indicates you are reliable, improving the chances of getting easier loan approvals
  • You can get the best insurance policies with low premium offers
  • You get easy access to financing, such as lines of credit and loans

Conclusion

Your CIBIL score takes a hit if you default on payment. However, you can improve your credit report with careful planning and financial management. It is also important to check your CIBIL score regularly. See if you are moving in the right direction. Tata Capital helps check your credit score for free. It also offers low-interest loans and easy approvals. You can connect with the experts to know more.

FAQs

How to increase credit score after default?

You can improve your credit report by maintaining a low card utilisation ratio and monitoring the CIBIL report regularly.

Should I use a secured credit card to rebuild my credit?

It is advisable to use a secured credit card to rebuild your credit.

Can I remove loan defaults from my credit report?

Yes, in case you settle your debt, you can submit an NOC to remove the loan default from your credit report.

How much will my credit score increase after the default is removed?

The exact credit score depends on your credit situation and cannot be determined in advance.
Disclaimer

Most Viewed Blogs

Trending Blogs

Calculator

Personal Loan EMI Calculator

Personal Loan EMI Calculator
Home Loan EMI Calculator

Home Loan EMI Calculator
Business Loan EMI Calculator

Business Loan EMI Calculator
Used Car Loan EMI Calculator

Used Car Loan EMI Calculator
Two Wheeler Loan EMI Calculator

Two Wheeler Loan EMI Calculator
Loan Against Securities Calculator

Loan Against Securities Calculator
Loan Against Property Calculator

Loan Against Property Calculator
More Tools
Our Subsidiaries
Our Private Equity Funds

Useful Links and Resources

Policies, Codes & Other Documents

Tata Capital Solutions & Services

error-icon

Uh oh, something went wrong

Please try again later.

Most Important Terms & Conditions - Home Loans

Download in your preferred language

Download