Home Loan For CIBIL Defaulters

A CIBIL score, a bad one at that, can impact your prospects of getting a home loan and hurt your dream of owning a house. So what do you do if your name is on the CIBIL list? How do you get a home loan if you are a CIBIL defaulter?  Read on to understand what is CIBIL score, how does home loan for CIBIL defaulters work,  how to clear CIBIL defaulter list, and what are the home loan interest rates for CIBIL defaulters.

What is CIBIL Score? 

A CIBIL score is a borrower’s credit score or a measure of his/her creditworthiness, based on your past credit behaviour.  It is a three-digit  number, and the score ranges from 300 to 900. A score closer to 300 is considered poor, and a score closer to 900 is a good score. 

Lenders update the CIBIL records, if the borrower has delayed or defaulted on repayment. The CIBIL score is based on the last 36 months of credit history.   

The CIBIL score is a part of the CIBIL report, which contains the CIBIL score, the credit summary, personal and contact information.  CIBIL, Equifax or Experian are credit bureaus from which you can get your credit reports. You can check your credit score online through various paid and free portals. Banks get your credit report from credit bureaus to evaluate your application for home loan.

Who Is a CIBIL Defaulter?

Before we go into how to clear CIBIL defaulter list, let’s understand who is a CIBIL defaulter.

In 1994, the Reserve Bank of India had introduced a system for maintaining defaulter information (for loans of Rs 1 crore or more), and sharing it with banks and financial institutions upon request. Later on, in 1999, RBI extended the limit to include loans of RS. 25 lakhs or more. 

However, there is no such thing as a “defaulter list” as of now, and credit agencies are not sharing any such lists.

Then, who is a CIBIL defaulter, and why do we need to know how to clear CIBIL defaulter list?

The present equivalent of CIBIL defaulter list is one with a poor credit score. That is to say, if one has a poor credit score, then metaphorically he/she is a CIBIL defaulter. If their loan application has been rejected,  it is not because their name figures on a “defaulter list”, but because they have a poor credit score.

A poor credit score is the consequence of having a bad repayment record. If a person had missed due dates and if they had delayed payments on loans and credit cards in the past, their lenders and banks would have reported their repayment behaviour to CIBIL, and it will reflect in their credit report.

How to Clear CIBIL Defaulter List? 

How can I remove my name from the CIBIL defaulter list — is a question that could be nagging you, in case you have a poor repayment record. As mentioned in the previous section, since there is no such thing as a “defaulter list” issued by CIBIL anymore; it is now all about the numerical credit score and the information on defaulted loans, missed due dates, and delayed EMI payments in your credit report.  

We are only human, and we may sometimes be visited upon by unforeseen emergencies such as a job loss, or an illness, or an accident. These unfortunate events may leave us unable to repay loans on time and eventually reflecting on our CIBIL score. However, that is not the end of the road. We can still work  on clearing the CIBIL defaulter list.  We can avoid loan rejection by improving the credit score and building a favorable credit profile.

• Take care always not to delay EMI payments, as the banks will report them to credit agencies.
• Take care not to have too many loans at a time, as it can negatively impact your credit profile.
• Avoid having too many credit cards, and try to use only up to 30 to 40% of your credit limit at any given time.
• In case, there is an emergency, and you are unable to pay, talk to your lender and request if they can defer your EMIs.
• Let bygones be bygones Be prompt with current loan repayments if any, if you have been a defaulter in the past. That way the newer positive records can help overwrite the older ones, and thereby improve your credit score.
• If there is a lawsuit against your defaulted loan account, try to go for an out-of-court settlement, after which the lender will have to update the credit agencies about it.
• If there are any errors in your credit report that wrongly show you as a defaulter, then you may get them corrected.
• Having a low debt-to-income ratio can help banks see you as creditworthy in spite of a lower CIBIL score.

Can a CIBIL Defaulter Get a Home Loan? 

Okay, we may take corrective steps to improve our CIBIL score after figuring out how to clear the CIBIL defaulter list. But the big question is can a CIBIL defaulter get a home loan? How would the home loan interest rates work out?

Well, yes. Banks may consider approving a home loan for a CIBIL defaulter depending on the general merits of the applicant.  

Here is what you can do to apply for a home loan for a CIBIL defaulter.

• Pay off all the outstanding debts, and work on your credit score before you apply for a home loan.
• It helps to have a co-applicant who is not a CIBIL defaulter (your spouse, or parent as the case may be).
• If you have a high income even after putting the past behind, you may still stand a good chance to get a loan.

One last thing.  When it comes to home loan for CIBIL defaulters, expect a higher home loan interest rates than what it would be otherwise. A CIBIL defaulter can get a home loan, but banks may charge a higher home loan interest rate. For more such articles on home loans and real estate investment tips visit Property Adviser.in.