Your loan application got rejected and that was the time when you realized that your credit scores are not up to the mark. And you have been struggling to get the scores to a decent level so that you could have access to the credit facilities. Following is the action item list that you would need to follow to be able to get desired results.
As a first stop obtain your report from the bureau and check if all the details on the report are accurate. As per a study, one of four reports have an error and these errors could be the cause of low CIBIL score. First check if all your trade lines are part of the report. Even the ones that have been closed in past must be there on record. Second, check if the status on these trade lines are correct. Must check if an account which has not been opened by you is part of your report. Only the currently active accounts should be reflecting with open status. There is a possibility that the closed accounts are also reflecting as open. Third check if the repayment of the active accounts has been updated accurately.
Identification of the areas that you would need to work upon is of high importance. Checking the report for accuracy is just one part of it. While you would take up the errors with the bureau and the concerned lending institution, you would also be required to check your credit utilization ratio. This is an important factor that impacts your scores. A high credit utilization can damage your scores. Check on the credit mix. All three segment of credit viz. secured, unsecured and revolving should be part of your loan portfolio.
Put up a plan on how to work upon the areas identified for improvement. You may be required to follow up with the concerned banks and bureaus for some time before the issue of erroneous reporting gets sorted out. Similarly, you would need to plan on bringing down the current outstanding in case it is high. Identification is like diagnosing the right cause, but enforcing the plan is like taking all measures to improve the health.
Please be aware that closing an account where you have been lacking in paying on time is not going to solve the purpose. This is for the simple reason that the repayment string would continue to reflect on the report. You would need to ensure that there is not even a single day’s delay on repayment on any of the active trade lines going forward. This way you would be able to build a good credit character and it will help in rebuilding that spoiled credit score.
A credit card is an excellent tool to build the credit. If you are unable to get a regular card due to low score, go in for a secured credit card. Please ensure that you are not maxing out on the limit provided to you by the card company. Ideally, the usage should not be greater than 30% of the extended limit. Do ensure that the due amount is paid in completely before the due date.
Credit age is an important element that helps building the credit score. Active accounts that have been running for a long period aid improvement of the scores. So do maintain those credit cards well over years and avoid closing the older ones when you get the newer ones.
In case you have had settlements on the accounts in past, please pay these up fully. Settlement is a negative flag and severely impact the credit profile. In case you have write off accounts (where you were unable to pay up any outstanding and a settlement could not be reached with the bank) contact your bank and initiate closure of these defaulted accounts.