A default can tarnish your credit report and leave you with a reduced credit score. This will impact your ability to borrow money, increase your interest rates, and more. A default occurs when you miss payments over time, depending on the lender’s terms. A default stays on your credit report for quite some time before it is removed. To improve your credit score and check whether you have a default on your credit profile, request a free credit report from DueFactory.
Steps to Improving Your Credit Score After Default
When you apply for credit, the lenders check whether you have a default. A default in your profile discourages the lenders from extending a loan to you. However, you can improve your credit health and lower the negative effect of the default. You can take the following steps to improve your credit score.
1. Create a Budget
The first thing to do is to create a budget according to your current financial situation and outstanding dues. A realistic budget can help you seamlessly manage your routine expenses and financial obligations. Include factors like your income, expenses, debt, etc., to keep the debt repayment fund aside. Take credit only when it is necessary. Plan properly and borrow what you can easily repay.
2. Pay the Dues
One of the best things to do is to speak to your lender, pay your outstanding dues, and offer to close the loan. This will change your account status from a ‘default’ to ‘closed’. Once you pay your dues, visit your credit bureau website and get your status updated. This will increase your CIBIL score. Due Factory, your credit repair partner, can help you repay old and bad loans.
3. Get an NOC
After paying the outstanding, get a No Objection Certificate or NOC. This document is a testimony that you do not owe anything to the lender. Due Factory can help you obtain an NOC document. Also, you can access all the settlement letters from the Due Factory dashboard.
4. Take Small Loans
Consider applying for smaller loans and making timely payments to rebuild your credit history. You might have a higher interest rate, but timely payment will boost your credit bureau score. However, do not apply for many new credits; every time you apply for a loan, the lender sends a hard inquiry. Too many hard inquiries can damage your credit score. We strongly suggest you do not exceed three inquiries in 90 days. If your credit score is poor and you are facing difficulty getting a loan approved, stop applying for a new credit completely. Focus on addressing the problem or repaying the outstanding loan first.
5. Apply For Secured Card
One of the other ways to increase your creditworthiness and credit score after default is by applying for a secured card. The users can pay the card dues timely and gradually improve their score. To get a secured card easily and quickly, connect with Due Factory.
6. Pay Monthly Bills on Time
Ensure to pay all your credit card monthly dues and loan EMIs. Paying the bills in full consistently before the due date shows the lenders that you are a good candidate for credit. It shows your financially responsible behavior and a good credit history.
7. Maintain a Low Credit Utilization Ratio
CUR is a measure of credit utilized and credit available. Keeping your credit utilization under 30% is good for your health. Also, the borrowers must develop the habit of clearing the entire bill due. Some borrowers clear only the minimum amount, leading to a high credit utilization ratio. A high credit utilization ratio can lower your credit score and show you as credit-hungry.
8. Maintain Credit Mix
Another answer to your question, “How to improve credit score after default?” is maintaining a credit mix. To improve your CIBIL score after a loan default, maintain a healthy credit mix. A range of different credits of secured and unsecured loans shows your ability to manage all kinds of loans to the lenders.
9. Check Your Credit Report Often
Check your CIBIL score and check whether every entry is correct. If you see any inaccuracy, dispute the errors and improve your CIBIL score. This will also give you an idea of whether your credit improvement methods are helping you progress or not.
10. Get Professional Help
If you are worried about your credit health, seek help from the credit repair companies like Due Factory. Due Factory offers customized advice and solutions to their clients. We help with your credit report analysis, identify bad loans, and start your credit repair journey.
11. Keep Patience
If you are thinking about how to improve your credit score quickly, then be informed that you must be patient. It takes a time of at least 6 to 8 months for credit improvement for a noticeable improvement. Credit repair is a journey that takes time, depending on your credit score. If your score is low, it may take longer. Ensure to remain financially disciplined and wait for the results. However, with the help of Due Factory, you can aim to have a great score and achieve success earlier.
Wrapping up
A good credit score is important for availing of credit facilities at low interest rates. Defaulting can severely impact your creditworthiness and credit score. However, your proactive steps can rebuild your credit score and show your responsible financial behavior. The same can enhance your creditworthiness and improve your score.
FAQs
1. Can I improve my CIBIL score by clearing off debts?
Ans. Yes, clearing a default loan may positively impact your credit score.
2. How long does a default entry stay in the credit report?
Ans. A default can remain on your credit report for approximately six to seven years.
3. Can credit defaults be removed from the credit report?
Ans. If the default is wrongly mentioned, you can dispute the same and get it removed by raising a query. But if you have defaulted on a loan, you cannot remove it from your credit report.
4. Can a defaulter get a loan?
Ans. It may be difficult for you to get a loan after a default. However, lenders have flexible terms to offer secured loans.
5. How long does it take to improve your credit score?
Ans. Improving your credit score takes time. It may take at least six months. Practice good financial habits like paying your credit card dues on time, maintaining a credit mix, keeping your credit utilization low, clearing default loans, seeking professional help, etc., can improve your score quickly.