What can lower credit scores and how to fix it

What can lower credit scores and how to fix it

Having a steady, well-paying job in a reputed multinational company, Purandhar Rao from Mumbai never thought he would find it difficult to get a home loan. “I had some savings and investments, too, and thought getting a loan was going to be a cakewalk," says Rao.

When the first bank he approached rejected his application, he was puzzled and thought it was a bank-specific problem. But when another bank did the same, it was time to sit up and find out why this was happening. It turned out he had defaulted on a credit card payment several years back. The debt now amounted to several thousands and showed up in his credit report generated by the Credit Information Bureau (India) Ltd (Cibil).

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Cibil is India’s first central agency to keep track of individuals’ credit record. It is linked to most banks that share information on their customers’ (you and me) money behaviour with them. Based on how you have behaved as a borrower and what your banking habits are like, a credit report (not unlike a school report card) is generated.

If you pay your credit card bills on time, have no disputes pending with your bank or credit card company, if you have not defaulted on any loan, you get a high score. A high score ensures that the next time you go to take a loan, the process is smooth. In times to come, a high score may also get you a lower interest rate.


Could you be on the defaulters’ list or marked negative and not know it? A tick against any of the five reasons below could mean that you are.

Genuine defaulter: If you fail to clear your dues on time, you are in for loan troubles in future as your name would be on Cibil’s defaulters’ list.

S.S. Suresh, credit counsellor, Banking Codes and Standards Board of India, says: “If you are shown as a defaulter, availability of any credit in future is seriously hampered. A lot of banks issued unsolicited credit cards in the past. There is a possibility that even if you haven’t used the card, it still shows in your name." There may be annual charges or other fees that may accrue in your name.

Lack of updates: Adhil Shetty, CEO, BankBazaar.com, says, “There is a possibility that the bank has not updated Cibil about your payments." For instance, if you didn’t pay your credit card bill this month and cleared off the dues two months later, but your credit card firm did not update Cibil about the latest transaction. Cibil will continue to show the missed payment as a default, thereby affecting your credit score.

Settled accounts: There are cases when you reach a settlement with the bank instead of repaying the entire amount. For instance, your credit card dues shot up to Rs1 lakh, but your bank agreed to settle at Rs65,000. The bank writes off the remaining Rs35,000 as it’s a loss incurred by it. Your credit report would mention this amount against your name.

Disputed amounts: There is a possibility that you are locked in a dispute with the bank over an amount. Technically, banks are not supposed to report such cases to Cibil. But there have been instances where disputed amounts have been reported as defaults.

Loans not closed properly: You may have paid off all your loan instalments on time, but that is not enough. If the loan is not closed properly, the loan account remains active. Get a no-dues certificate from the bank and insist that your credit report is updated.

Other reasons: Human errors cannot be ruled out. A default by someone who shares her name with you may show up in your credit report due to an employee’s carelessness, a possible fraud or pure bad luck.

How do you fix errors?

If your credit score is low without you really defaulting on any of your payments, there are ways to fix the problem.

Arun Thukral, managing director, Cibil, says, “If you believe that there is an error in your credit information, you can approach Cibil."

You first need to access your credit report from Cibil. Identify the error in your report and send in your queries to Consumerqueries@cibil.com. Contact the related bank or institution and inform it about the error by providing the necessary proof of having cleared your dues. After validating the error, the bank will submit the updated information to Cibil. “Cibil is permitted to make changes to your credit information only when it is confirmed by the credit institution," says Thukral.

As per the law, credit information is retained for seven years.

Recourse for defaulters

Harsh Roongta, CEO, ApnaPaisa.com, says, “Cibil keeps a record of your payment history—good and bad. Even after a person pays off his dues, his payment history will continue to be available to prospective lenders for seven years."

In such cases, pay off all the dues in full. Then get a secured credit card, or a secured debt such as a loan against assets and keep paying the instalments regularly for a year or so. This will not erase your default status, but will help gain credibility. Thereafter, ask your bank to update your credit information with Cibil.

Graphic by Ahmed Raza Khan/Mint