iDentistry The Journal identistry_may_aug2019

The Journal portfolio is better for our credit score because these loans are generally available at cheaper rates. While unsecured loans are easily available but are also expensive. Higher proportion of unsecured loan gives an impression to the credit bureau that we have to service debt with high interest rates. Many a times, we are getting calls from various banks requesting for availing credit cards and we apply inspite of having existing credit cards. Large number of credit applications means we are frequently trying to avail loans. This portrays us as a credit hungry person to the credit bureau affecting our credit score. How is this Negative Score created? First thing that happens when we don't pay credit card bills is that we run huge interest debt in addition to charges for late payment. Second thing is that we ruin our credit score, credit rating and credit history which we can’t repair later on even though we settle the debt on the terms of credit card issuer/bank. Once our credit rating is poor, no Bank/Financial Institution would be interested in entertaining our request for any type of loan and it is an arduous task to get the bank to remove the remark/s written off or written off/settled in our CIBIL report. Generally, the credit issuer would write off a portion of the dues, if the repayment is not forthcoming from the debtor or the dispute is to be settled on mutually agreed terms between the bank and the party. In case of dispute, the debtor disputes the interest and charges levied which leads to delay, increased interest burden and numerous charges and threatening or nuisance calls from the Bank. The chain starts with a first delay or default and the first adverse effect usually is a dramatic decrease of our credit score. Our score will drop by 90–110 points. It will take at least 6 months – 3 years to recover. If we continue to not pay our debt, our score will continue to drop and our account will move to the recovery department. At this point, our credit report will reflect a 30, 60, 90 and 120 day late payment. Should we continue to not 36 pay our debt; the debt will have to be written off the books (charged–off) of the credit card issuer’s (creditor) book. This is merely an accounting term as we still continue to owe the debt. Meanwhile, we owe not only the principal amount of the debt, we now owe, in addition to the interest, late charges, penalty charges and in some cases recovery fees too. Some times, in worst case scenarios, if we have other credit cards with other creditors, these other creditors may invoke universal default provisions and our credit limits may be reduced which will further crash our CIBIL scores. It is easy to mess with the credit score but difficult to rebuild it again which is a slow and steady process and needs months and months to monitor and gain trust in the new lender as our intentions need to be shown. Quoting an example of how negative CIBIL Score is created Ravi, age 35, has availed of a loan to purchase his house. However, he has not made his EMI payments towards the loan for the past few months. In simple terms that is known as a default; not making agreed upon payments towards an outstanding loan or credit card account to the lender. Possible reasons for default? 1. Not having sufficient funds to make the payment. 2. Unwillingness to make the payment, i.e. willful default. 3. Procrastination or not making payments on account of being lax. However, whatever be the reason for not making a payment, it is recorded as defaulting, on our credit information report once a certain period of time has elapsed. How is the CIBIL score affected by defaulting? Vol. 15 No. 2 May-Aug 2019

iDentistry The Journal identistry_may_aug2019 | Page 36