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Rediff.com  » Getahead » Poor CIBIL score: Consider 'credit repair'

Poor CIBIL score: Consider 'credit repair'

By Rajiv Raj
November 18, 2015 09:38 IST
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Do you know what is 'credit repair'? And how to go about it? Rajiv Raj has the answers

Ashish's home loan was rejected and not once but twice! The reason… a poor CIBIL score.  He was in a fix. After researching online he became aware of the term Credit Repair. He decided to repair his CIBIL Score in order to fulfill his dream of buying a house. Now the next question was should he consider hiring a credit Repair Agency or do it himself!

Let us look at another example: You want to lose weight. You know what needs to be done; if you are disciplined enough, exercise regularly and eat the right kind of food you can do it yourself. However if you do not have the right information and are not disciplined enough then you require the services of an expert.

The same principal applies to Credit Repair; it is slow process that requires patience, discipline and above all the right approach.

Whether one chooses to go about it with or without professional help there are no quick fixes. No Credit Repair Agency can remove or modify the information provided in your CIBIL Report ASAP; they are not miracle workers!

What is Credit Repair?

Simply put credit repair or credit restoration is the process of identifying the cause/s for a poor CIBIL score and then work towards improving or 'repairing' it. The cause could be as simple as a mistake on the part of the credit rating agency or a financial institution or more complex issues like overdependence on credit card, missed payments in the past or a huge debt load etc. The time taken depends on the complexity of the issue at hand.

How does Credit Repair work?

As mentioned earlier credit repair aims at improving the CIBIL score by taking care of the root cause of the issue that is pulling down the credit score. Credit Repair does not involve tampering with or modifying the information that has been provided by CIBIL. This aspect should be clear before one starts with credit restoration.

The first thing is to get a full Credit Report from CIBIL and go through it carefully to understand what the report says. The report carries comprehensive details about your entire debt -- past or present.

The next step is very crucial to credit restoration: it is identifying the problem. If it is an error on the part of some agency then getting it rectified will help you in improving the score. More complex problems especially if they are more than one will require a more careful analysis.

Then we come to fixing the problem or making a plan to fix it. An issue like inaccurate reporting by an agency (whether credit rating or financial institution) can be sorted out by contacting them and requesting them to make the necessary corrections. Problems like missed payments, debt trap, and too much revolving credit require analysis of the complete financial health of a person and then work out a solution. This might involve negotiating with the lenders to come up with a solution that is favorable to both the parties and will take time.

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Amit had poor CIBIL score despite always being prompt in his payments. On analysing his CIBIL report he realised he had high credit utilisation ratio which was the main cause for his poor CIBIL score. After speaking to his credit card company he realised that he was eligible for a much higher credit limit; he had not bothered to revise his credit limit for the last few years. With a higher credit limit his credit utilisation became much lower.

While some solutions may be as simple as the above example others may not be. They require a plan and then sticking to it. The person may have to cut down his expenses, stick to a monthly budget, avoid credit card splurging and stick to a strict schedule of paying EMIs and credit card dues on time. This may especially be true if you have too many over dues that have been piling over for a considerable time. Being disciplined is very important for credit repair.

So to sum it up credit repair involves: get the report, identify the problem, look for a solution, make a plan and stick to it.

Should you hire a credit repair agency?

A credit repair agency is a group of professionals who can help you in improving your CIBIL Score. Actually they can't do anything that a person himself/herself can't do to help his credit score. However sometimes due to lack of discipline, right information, knowledge or time their help may be required.

Simple issues may not require the help of any agency but in case you are hiring one keep a few things in mind. Stay clear of companies who promise quick solutions or tell you that they can modify your CIBIL score; this is simply not possible.

Photograph: José Manuel Ríos Valiente/Creative Commons

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

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Rajiv Raj