Life is tough for 35-year-old Sachin Shinde who moved from Solapur to Mumbai about five years back. Working as an executive assistant of a film director earns him just about enough to survive in a big city like Mumbai where his dream is to give his daughter a good education. The problem however is that he can barely make two ends meet. Recently, due a kitchen accident, all the major appliances in his kitchen got busted. To replace the appliances his wife Sandhya suggested that they take a personal loan.

Ignoring credit health can have devastating consequences

Sachin thought it was a plausible solution and applied for one only to learn after a couple of days that his application had been rejected because of a poor CIBIL score. Till now, Sachin had not been bothered about his own credit score, although he was not entirely alien to the idea as he would regularly come across advertisements and articles about the importance of maintaining a high CIBIL score. However, he never took it seriously and thought of it as a scam!

 Reality bit when his own personal loan application got rejected. At a loss about how to cope without a loan in his time of need, he approached his cousin SurajShinde who was a banker by profession. Suraj told him not to panic as there was indeed a way out. He told him while the top line traditional banks would not agree to give him a personal loan for low CIBIL score, there are other non-traditional lenders such P2P platforms where he could bad credit personal loans. Even some smaller co-operative banks and NBFCs have personal loan for CIBIL defaulters.

Rectification of credit health is a must

This however, as Suraj cautioned was only a temporary bad credit fix. Sachin had to gear up for the long haul, rectify his credit health and thus redeem his CIBIL score. The reason why Sachin’s CIBIL score had dipped to a level of 538 (out of 900) that he was habitually late in repaying the EMI of his home loan. He had purchased a Maharashtra Housing and Development Authority (MHADA) flat in the year 2014 with a loan of ₹15 lakhs. After repaying the first few instalments, he lost his first job. Although he had some money saved for emergencies it lasted him only three months.

It took him six months to find a new job, with a cut in pay. As a result, he could never recover from the setback of late repayments on EMIs. For the past two years, Sachin has thus been making repayments on his loan at least a month and a half later than the stipulated date. The other problem that ails Sachin’s credit health is his credit card. To make up for the deficit in his income Sachin had taken up a credit card about six months back. But once again due his meagre income his outstanding balance is high and accounts for more than 50% of his credit utilisation.

Factors that impact your credit health

Suraj heard Sachin’s case patiently and was quick to deduce the problem areas of repayment history and credit utilisation, the two most important factors that impact an individual’s credit score. Suraj explained to Sachin and Sandhya that it is very important to know the factors that impact one’s credit score to maintain a satisfactory CIBIL score in the first place.

He also said that credit card was a costly form of debt and they should make arrangements to repay it immediately. Sachin had an outstanding of ₹35000 on his credit card. Sandhya said she had saved about ₹25,000 and the rest Suraj offered as an interest free loan to his favourite cousin Sachin. Repaying his entire credit card outstanding at once would have a positive impact on his credit score and bring it up considerably.

The next problem at hand was the repayment track record that was in shambles for Sachin. Suraj suggested that the couple meet the bank and work out a better repayment plan and decrease the EMI burden by increasing the tenure of the home loan by another five years. This would bring down the EMI amount by approximately ₹ 5000. Slight tweaks in their household budgeting would then allow Sachin to repay the EMI amount on a timely manner and bring up his score to a satisfactory level of 750 and above.

Suraj however explained that the repayment track record cannot be rectified overnight and it would take Sachin a minimum of a year to bring his credit health in shape. The most important thing Suraj said was to be credit alert in order to remain credit healthy. Apart from the factors that impacted his score negatively, Suraj also advised Sachin not to apply for too much credit before he could rectify his credit health. Listening to all the factors that impacted one’s credit score, Sachin and Sandhya are now wiser and have decided not to avail of a personal loan with a low CIBIL score as of now. Sandhya is a deft homemaker and says she can manage without any fancy kitchen equipment right now.

Spared of the burden of having to avail of a loan with bad CIBIL score, Sachin is wholeheartedly focussed on rectifying his score. As if in reward to his hard work and efforts, he has also received a substantial hike last month that makes it easier to manage his debt burden. He has also learnt that he should use his credit card judiciously and make full repayments in each billing cycle. He knows his wife has sacrificed a lot in order for him to get his credit health in order thus plans to gift her a state of the art blender on Woman’s Day. And this time, he is not purchasing it on credit!

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