Bankruptcy is a legal status of a person or an entity who cannot repay the debt that is owed to the creditors. It could happen if you have undergone a huge loss in your business or due to losing a job or an accident leading you to be paralysed or handicapped. When one declares for bankruptcy, his CIBIL score decreases and a low CIBIL score makes it close to impossible to get further credit. The bankruptcy remains on your credit report for up to 10 years.
Though it is hard to get a credit after bankruptcy, it is not impossible. If bankruptcy is mentioned on your CIBIL report, it means you will have to pay more to borrow more. But bankruptcy should enable you to start fresh and help you start to save as all your debt will be eliminated. Grow a substantial emergency reserve.
You can take the following measures to start fixing your CIBIL score:
Keep reviewing your CIBIL report:
Obtain your CIBIL report and check if all the information mentioned and recorded in it is accurate and there hasn’t been a mistake in it being entered in your report. Check for errors and inconsistencies.
Apply for a secured credit card:
Secured credit cards are given against a fixed deposit. The limit of the credit is a certain percentage of the amount that you have kept as fixed deposit. This will help you fix a bad CIBIL score and once you have the credit card, make sure that you make all the payments on time but spend regularly on the card and stay within your credit limit and always make monthly payments on time. Do not ever allow a late payment or default on other loans if you have any. You must constantly use the credit card to ensure that your credit score increases. ICICI Bank and Axis Bank offer these credit cards in India.
Pay your bills on time:
Payment history accounts to 35 percent of the CIBIL score. You can instruct the bank by giving a standing order to make the payments on your behalf so that you do not miss or make a late payment.
Take a car loan:
After a year or two after declaring bankruptcy, consider taking a car loan. Buy a car that is affordable and when you know for sure that you can successfully pay the loan off. The lenders will charge a high interest rate, so look around and take the quotes from various banks and NBFCs.
Never go to a credit repair service to fix your CIBIL score:
They are expensive and not everyone is legitimate and hence beware of these services. It is best that you fix your own credit so you will know where you went wrong in the first place and you will know that you must not repeat the same mistakes again.
Stay within your credit limits:
Once you have managed to re-establish your credit, it is of utmost importance that you stay within your credit limits. Keep the credit balances low and repay them on time and don’t default on any payments.
Don’t close the accounts:
It may seem like a good idea for you to stay off of the credit cards, but this will damage your credit score further. When you are closing a credit card, you will be reducing the amount of credit that is available to you and it further decreases your credit score. It is best to keep all the credit lines open and if you believe that you will spend on your credit card, cut it off and choose a credit card that will not charge you a high annual fee and keep paying it to retain the credit that is available to you.
Don’t lose your patience, it took time for you to reach bankruptcy and it will take time for you to recover from it. Take loans that are easy to obtain. Make all the payments on time. Utilise low credit and don’t close a line of credit as it will reduce the amount of credit that is available to you. Keep a close eye on your CIBIL report annually for the errors and inconsistencies. When you are bankrupt, it is the best time for you to start an emergency fund to rely on as you will not have any debt. Take a car loan so that it helps you improve your credit and it will also be a part of an investment. Learn from your previous mistakes and avoid it.
FAQs on Ways to rebuild your CIBIL/Credit Score after bankruptcy
- How does keeping old credit cards active impact credit repair after bankruptcy?
Keeping old credit cards active and repaying bills on time demonstrates responsible credit behaviour, gradually improving your credit score.
- How long does it take to rebuild your credit after bankruptcy?
Rebuilding your credit after bankruptcy is a gradual process. It might take about 24 months to reach the 'Fair' credit range (650 or above) and potentially 3-4 years to achieve a score of 750 or higher. Consistent financial discipline is key.
- What is the significance of a secured credit card in rebuilding credit?
A secured credit card allows you to build credit by using a fixed deposit as collateral. Using it responsibly and making timely payments helps improve your credit score.
- How can maintaining a healthy credit utilization ratio contribute to credit repair?
Keeping your credit utilization below 40% indicates responsible credit usage and positively impacts your credit score over time.
- Can getting a secured loan help in rebuilding credit post-bankruptcy?
Yes, obtaining a secured loan like a loan against property or securities and repaying it on time can improve your credit score over time. The credit mix, including secured loans, is considered by credit bureaus.
- How does bankruptcy affect your credit report and CIBIL score?
When bankruptcy is recorded in your credit report, your CIBIL score drops, making lenders hesitant to offer credit. It can take time to rebuild your credit score after bankruptcy.
- Can a secured loan like a two-wheeler loan contribute to credit repair?
Yes, securing a loan such as a two-wheeler loan with a substantial down payment can aid credit repair. Making timely payments on secured loans positively influences credit scores.
TransUnion CIBIL is one of the leading credit information companies in India. The company maintains one of the largest collections of consumer credit information in the world. CIBIL Score plays a key role in the lives of consumers. Banks and other lenders check the CIBIL Score of the applicants before approving their loan or credit card application. Consumers can visit the official website of CIBIL to check their CIBIL Score and Report.
