Credit score: How to fix bad credit history and seek fresh loans for your needs

We live in an era where credit/loans dominate the lifestyle of every individual. People across India have widely accepted the idea of taking credit to finance their aspirations. Right from procuring capital to start one’s own business to a health emergency or investing in a new property/ vehicle to funding education, planning a holiday to even shopping for a mobile phone, etc; credit or loans are gaining wide popularity. With the plethora of options available, credit has marked its presence in almost every house.

Loan growth in India is expected to be 7.90 percent by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Also, with booming digitalization and due to the rise of fintech companies entering the Indian market, the credit scenario will soon be at its all time high.

Credit vendors including banks, NBFCs, P2P Lending platforms and others are making it easier to take loans offering a wide variety of loan options suiting all kinds of needs of different individuals. However, many Indians still strive to get a loan. Here we need to know, why and how?

Your credit history defines your primary eligibility to get a loan. For the same, it is extremely vital to understand the concept of credit i.e. good credit and bad credit. While we all may live on credit, our actions/ activities with our credit can affect our major buying decisions.

Good credit v/s bad credit history

Every debt undertaken, either as small as Rs 1,000 to as big as Rs 1 lakh or beyond, automatically reflects your credit score. Gaining a good credit score is an outcome of your positive track record which implies that you pay on time; pay at least the minimum required payment; never miss a payment while also staying within your credit limit. On the contrary, if you follow the practices that go against the ones mentioned, it may lead to bad credit signs.

Representational image. Reuters

Although there still exist a few unsecured lending platforms that may have saved you by keeping you away from CIBIL ratings, that trend may not continue for long. For instance, the borrowers at P2P lending platforms may have enjoyed defaulting until now as their data was not shared with the credit bureau. However, with the recent regulation of the RBI, even the historical data of all borrowers will be shared, impacting their credit scores in future.

While a good credit helps you to borrow money, it also helps you to borrow at a pocket-friendly interest rate. This is because your credit history speaks for your quality of a good borrower who clears his/her debts in the required time frame. Hence, applying for big ticket loans for buying a property or a car becomes easier. Bad credit, on the contrary, may keep you away from being eligible for loans/ credit cards depending on the intensity of your bad debts, as reflected in your score.

Solutions to fix bad credit history

Although bad debts may provide you minimum scope to apply for a loan, one can still fix it in time. The first rule to this game is that there are no quick repair solutions. The idea is to gradually build the positive score so as to eventually overrule the past negative record. The immediate step that you can take is to clear your old dues.

As a next step, you can also consider taking a small, fully secured loan for a short period of time. This could be against your fixed deposits or any property in your name and then ensure timely re-payments of the same. You could also apply for loans from New Age platforms where credit score is only one of the evaluation criteria. You may have a chance to win the battle here, while being evaluated on their other parameters.

Lastly, you could apply for a secured credit card that is clubbed with a term deposit, as this will be purely on the basis of your deposit made.

To conclude, bad credit is definitely not a good choice. If you take credit for any purpose, ensure you take it with the good intention to pay back on time. The financial norms and structure will soon make it difficult to allow any scope for such mistakes.

However, if you think, you are getting into this trap; it is advisable to find quick solutions before it is too late. Credit is not always bad, but understanding it will help all to avail its benefits of credit and ensure it is good.

(The writer is the Chief Executive Officer & Founder of LenDenClub, a P2P lending platform)