Debt. A four letter word that can be a huge thing to deal with when it comes to not being able to repay it! With the ease of loans and credit availability, it has become easier for all to access some money when they actually don’t have it! However, with great power comes great responsibility.
So, when one is blessed with having the power of accessing money when they don’t actually have it i.e. in terms of credit or loan, they have equal responsibility of repaying the credit on time and with the interest if charged any! Initially it may appear that it makes no change or it makes no difference, but actually, it does. Several missed payments, delayed payments get the credit score down. And how will that happen?
We all know the basic concept of credit score and cibil score and how it works. Starting from payment history to amount owed, credit mix, length of credit history and new credit; the algorithm applied by credit bureaus make the score. The major factor, payment history has 35% weightage and the missed, delayed payments are the major concerns there. Let’s talk about debts now. Tue good debts and the bad debts. Good debts are something where you have invested by taking the credit from outside and today you are sure that it is going to give you good returns. Something more than you have invested including the interest. Bad debt is completely reverse than it. You have invested some money by taking credit and forget the interest that you have to pay otherwise but even the basic investment that will not get returned. Debt is definitely a responsibility that one has to take care for. But when it comes to bad debts compared to good once, the borrower is shaken. As, whatever form the credit was taken, he/she has to pay for it. And eventually, if they stop that will hamper the score.
Once suppose the loan was taken when the credit score was not even established, i.e. Loan with no CIBIL score, this is even a bigger issue. Let’s understand why a person is without a score. A score is established after six months of any credit line that is taken. Either a credit card or any lone that is taken and it’s usage and repayment is observed and then the score is established. So, anyway, a loan with no cibil score is difficult to get and on top of that it is some kind of unsecured loan or may be secured for that matter, is taken and not repaid on time or with missed payments, the score even before it is established, crashes!
Now since one is already drowned in the bad debt that is a huge thing that is to be taken care for, a few missed payments have messed it up with the cibil score. What can be a few of the things that are hence affected?