Turning a blind eye to your past financial mistakes will do no good. You need to work upon the unfavourable entries in your credit report to ensure that they do not have any negative influence on the credit score.
Sushil Kumar knew that he had a large personal loan debt piling up. He hadn't paid the EMIs for the past couple of months due to a financial crunch. But he could not ignore his debts any longer. He had almost finalized buying a home and he needed a home loan to fund it. He knew very well that the bank would check his credit score and report before making an approval decision. He urgently needed to work on his credit profile to ensure that he got an easy approval of home loan.
Sushil ordered his credit report and to his surprise his credit report showed 3 bad debts instead of 1 that he knew about.
Here are some strategies that he followed to get control of his debts, convey with the lenders and remove bad debts from his credit report.
1. Dispute the error with the credit bureau- The outstanding balance of Rs 2,00,000 instead of Rs 20,000 was surely an error on the part of the credit bureau. Sushil had to get that negative information removed to avoid it from hurting the credit score. He filed an online dispute with the credit bureau to challenge the inaccurate information and also submitted the copies of proofs of his outstanding dues. The bureau investigated the issue with the credit card company and found that it was indeed a typo error. Though the bureau took a month to reverted back, it did make the necessary changes in the credit report.
2. Pay for delete- Removing the bad remark of being a loan defaulter on the personal loan was a bit of a challenge. Sushil knew that this information was accurate and there was no use of disputing it. The bureau would not remove any accurate verifiable information. He had to somehow persuade the lender to remove the negative remarks. So he sent a pay for delete offer to him and requested him to remove the negative listing if he paid the total outstanding amount. Luckily the lender took up the offer. Sushil got this agreement in writing but wondered how he would come up with this lumsum amount. Were there any loans for CIBIL defaulters in Mumbai? A simple Google search gave him the answer. There were lenders who were ready to offer bad credit loan with a low CIBIL score. Sushil immediately applied for a bad credit personal loan and used the funds to pay off his bad debt. As agreed the lender altered the way the account was reported to the agency.
A point to note is that simply paying off the last 6 EMIs which Sushil had missed would not have helped his credit score. The information of defaults on EMI payment would still reflect in his credit report. Also it is not a normal policy of the creditors to delete the negative information just because the debt is paid. This decision is on a case to case basis and also depends on one's ability to negotiate with the lender.
3. Goodwill deletion- The third bad debt to be dealt was the late payment records on the car loan. Sushil wrote a letter to the creditor asking him to remove the negative entry out of goodwill. He explained his situation and requested the lender to forgive the late payment. Since Sushil had a good previous relationship with the bank, the bank accepted his request and updated the information being sent to the bureau accordingly. This strategy sometimes works surprisingly well if you clearly show how you’ve had a good payment track record with the lender and explain the hardship that led to the late payment. Although the creditors don’t have to necessarily comply to this request, many do it out of goodwill.
The above strategies for bad credit fix can help you clean up your credit report. But it is best not to make the credit mistakes in the first place. Work on improving your financial habits so that positive credit behaviour overshadows your past financial mistakes with time.