Internet is a great source of information. Our way of seeking clarification on various doubts has changed. Till a few years ago, we would ask a specialist or a close ally who we could trust. Now, all of us try to seek answers to the queries through search engines. But what we forget to understand is that the information available online may or may not be accurate. Secondly, the information may or may not be relevant to our country, culture, society, law etc.
One query that commonly gets bounced by people is if the unpaid accounts will get purged after 7 years of existence on the credit report. More and more people are going for free CIBIL check online and are also reading on the internet that after 7 years the credit history will get erased and one will be in a position to start off afresh and shall be able to have access to loans.
Be assured, this is not going to happen in India. No account gets deleted and continues to be part of the report even beyond 7 years. Today when one obtains the credit report, he will find the accounts greater than 15 years as well reflecting if he had taken a loan at that time.
So if one has gone through financial crisis and has not been able to pay up the banks, the account will continue to reflect with negative flags such as settled, write off, post write off settled, special mention account etc. What does this mean to the individual? As is understood in common language, the name will continue to reflect in the loan defaulter list and the person will not be able to have access to credit from any lender.
If the accounts were to get removed, then the number of individuals defaulting on loan repayment may increase. While people do not wish to default and the stressed financial circumstances lead to non payment. The fact remains that getting a concession on repayment would lead to people not making effort to repay the outstanding amounts to the bank. This will lead to mounting NPAs.
While the purging of accounts is applicable in some developed economies (in respect to the credit environment and structure) Indian market has yet to achieve a robust construct where such policies could be rolled out. In our country where not even every adult has an account, thinking about a situation where one can get the liberty to start all over again seems to be a distant feature.
What should one do?
Now the question that arises is that what should be done? The answer to this is quite simple. One needs to work out the finances in a way that the outstanding amount gets paid off in full to the bank. In the event of default, that could be on account of some exigency or any circumstance out of one’s control, one can approach the bank and request for restricting of loan.
In case the same does not happen, as and when the financial status improves, one must approach the bank proactively to get the account closed. Bank may consider extending some discount and accommodate by waiving penal charges and or interest.
However, without paying the banks in full, one can just say goodbye to the possibility of having a loan or any other credit facility disbursed in his name.
The credit mistakes are going to stay for as long as the bureau report exists (at least for now) and it is advisable that one should look at closing the accounts by repaying the lending institution. In the absence of repayment, one may not be able to have access to credit facilities.