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Business News/ Money / CIBIL: How to rebuild your credit score after bankruptcy? Here are 7 effective ways
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CIBIL: How to rebuild your credit score after bankruptcy? Here are 7 effective ways

Secured credit cards are meant for individuals who have poor or no credit history. You will need to give a security deposit, that serves as your credit limit. Use the card responsibly by making small purchases and paying off the balance in full each month to show responsible credit usage.

Clearing your bills consistently, including utilities, rent, and loans, on time is very important Premium
Clearing your bills consistently, including utilities, rent, and loans, on time is very important

To rebuild your CIBIL score after insolvency, also known as bankruptcy, is a gradual process, but it’s certainly doable with disciplined financial habits. You need to review your credit report, clear your bills on time, keep your credit utilisation low.  

One of the key advices to follow is be patient as rebuilding credit score takes a long time. Getting a regular credit card will be difficult, so you can apply for a secured credit card.

Follow these 7 steps to improve your credit score:

Open a secured credit card: Secured credit cards are meant for individuals who have poor or no credit history. You'll need to give a security deposit, which serves as your credit limit. Use the card responsibly by making small purchases and paying off the balance in full each month to demonstrate responsible credit usage.

ALSO READ: What is the difference between hard and soft inquiries on your credit report?

Apply for a credit builder loan: These loans are designed to help individuals build or rebuild credit. They typically have low borrowing amounts, and the lender holds the loan amount in a savings account. When you make timely payments, your payment history is reported to credit bureaus, thus helping you improve your credit score.

Become an authorised user: If you have a friend or family member with good credit, you can consider becoming an authorised user on one of their credit cards. Their positive payment history can boost your credit score.

Pay bills on time: Paying all your bills consistently, including utilities, rent, and loans, on time is important. Payment history is one of the most significant factors affecting your credit score. So, you can set up automatic payments to avoid missing due dates.

Keep credit utilisation low: Keep your credit card balances low relative to your credit limits. Aim to keep your credit utilisation ratio below 30 percent, as high credit utilisation can negatively impact your credit score.

Monitor your credit score: Regularly monitor your credit score and credit report to track your progress. You can use various credit monitoring services or even sign up for alerts directly from credit bureaus.

Patience pays: Rebuilding your credit after bankruptcy takes time and patience. Stay committed to your financial goals and responsible credit management practices, and over time, you'll see improvement in your credit score.

It is vital to remember that while bankruptcy stays on your credit report for a number of years, its impact declines over time as you show responsible financial behaviour. 

Frequently Asked Questions:

Does checking your credit report impact your credit score?

It does not impact your credit score. As a matter of fact, it is advisable to keep checking the score from time to time.

How can you improve the credit score?

You can work on improving your credit score by making timely payments, reducing outstanding debt, and maintaining a healthy credit utilisation ratio (CUR) before applying for a loan.

Why should one stay away from the ones that give guaranteed offers?

One should stay away from the agencies that promise to improve your credit score immediately or are guaranteeing specific results. Genuine services may offer assistance in improving your credit, but they never give guarantees.

What is the key disadvantage of a low credit score?

Among several disadvantages, one of the key disadvantages is that you are likely to be offered higher interest rates even when a loan is approved.

Do banks take a decision of giving a loan on the basis of borrower’s credit score?

Yes, lenders generally use credit score as a key factor in determining whether to approve a loan application. A low credit score may result in denial of credit or approval with less favourable terms.

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Published: 05 Apr 2024, 10:56 AM IST
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