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Repair your credit score

Repair your credit score

By reducing the impact of past financial mistakes, you can improve your credit worthiness. However, there are no quick fixes.

Rivajit Kalita, a 38-yearold Guwahati-based builder, first heard of the term credit report when his bank, along with three others, rejected his home loan application on the grounds that he had a poor record. He had been classified as a card defaulter in the Credit Information Bureau India Limited (Cibil) records.

His mistake was that he did not pay his entire bill before shifting homes. Since he failed to inform the bank to cancel his card, it kept sending bills at the old address, and with every subsequent late fee and interest rate on the rollover credit, the outstanding amount increased. Eventually, the bank wrote off the entire amount and, in the pre-Cibil days, he even managed to get some new cards. But in the current era of risk management and slow credit growth, he found it impossible to land a loan.

If you are in such a situation, all you can do is start mending your credit record. Be warned, however, that there are no quickfix solutions. The trick is to gradually build the score so that your recent track record can negate the impact of the previous financial mistakes. The first step is to clear old dues. Says a GE Capital executive: “Be sure to get a letter from the finance company in question, stating that you have settled all your dues and ask them to update this information with Cibil. The letter will be required as proof if you approach any bank for credit in the future.” Otherwise, you will continue to be listed as a defaulter.

As an additional step to re-establish your credit worthiness, you can consider taking a small, fully secured loan for at least a year. This is exactly what Kalita did. “My bank’s relationship manager advised me to pledge either some fixed deposits or a property deed in my name, against which I was offered a loan of an equivalent amount. The bank no longer tagged me as a high-risk customer as I had submitted adequate collateral. I took a personal loan of Rs 70,000, and if I can service all the EMIs on time for a year, I have an excellent chance to bag the home loan,” says Kalita.

Alternatively, consider applying for a secured credit card, which requires you to take a term deposit. The credit limit extended to you is typically 80% of the deposit. Since the bank is not taking a risk in having you, it is unlikely to reject you because of your poor credit score. This provides you with an opportunity to establish good intent. Apart from paying the full bill on time, every time, if you limit the credit ratio to around 20%, and definitely less than 30%, it will help you earn brownie points.