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How Financial Institutions Kill CIBIL Score?

financial institutions
financial institutions

CIBIL reporting by financial institutions is one of the most discussed topics on my website. I never suggest my clients to default on loans/credit card/overdraft. As i keep highlighting that any default may lead to a major impact on CIBIL Score of the borrower. To avoid credit default, financial institutions urgently need Credit Counselors. Even in the case of a credit default, defaulter should be punished and penalized which is logical and reasonable. Moreover, punishment should be as per existing rules and regulations. Through this post, I am not justifying the default on credit availed by the borrowers. The objective of this post is to highlight the practices adopted by the financial institutions to intentionally KILL the CIBIL SCORE of a borrower. In contrast to a fair, legal, logical & reasonable punishment for default on borrowings.

How the Borrower is Punished for Payment Defaults?

It’s a no-brainer that the defaulter is punished by financial institutions through reporting of payment defaults to CIBIL. Which in turn impact the CIBIL score of a defaulter to caution future lenders so that he/she cannot avail credit in future be it a credit card, loan, overdraft etc. According to Credit Information Companies (Regulation) Act, 2005 which govern the Credit Information Companies or financial institutions, all accounts irrespective of their status (both Good and Delinquent) have to be maintained for a min period of 7 years from the date the credit account was last reported.

In short, the defaulter can be punished for 7 years from the date of last reporting. The whole catch lies in the line “7 years from the date the account was last reported”. The regulation only define min period of 7 years where as there is no max period. Max period cannot be indefinite. We will discuss in next section how financial institutions exploit this clause to kill the CIBIL Score of a defaulter intentionally.

How Financial Institutions Kill Your CIBIL Score?

In case of payment default, the financial institutions try to recover the money from a borrower. There is a process which is being followed and financial institutions try to recover the amount by following laid guidelines. If the amount is recovered well and good otherwise through DPD’s and Default status entries in the CIBIL report, the borrower is punished and penalized. After the default is last reported, the borrower may find it difficult to get a loan for a period of 7 years. In short, for the economic offence of payment default, min punishment is of 7 years. Now let’s check how the financial institutions increase this punishment to more than 7 years to cause max damage to the creditworthiness of the borrower/defaulter.

1. Regular update of Defaulted Account:

Financial Institutions make a point to update all the defaulted accounts on a regular basis (mostly on a yearly basis) even after it is closed, settled or Written off. I have hundred of cases in which the defaulted account is getting updated even after 10 years from the Date Closed in CIBIL ReportIn an ideal scenario, if an account is closed on a particular date the last Date Reported and Certified should be max 60 days from the Date Closed. On the contrary, financial institutions will update this account on an annual basis so that it will stay in your CIBIL report for the longer period. It is being done to intentionally hurt the CIBIL Score. Let’s understand with a hypothetical example

Assuming, i defaulted on payment of personal loan due to XYZ reasons. I settled the account with the bank on Jan 01, 2007. Bank closed the account at their end on Jan 10, 2007. Finally, the bank reported Date Closed Jan 10, 2007 in CIBIL Database. The same information was reported to CIBIL on Feb 28, 2007. Therefore, against the defaulted account, Date Reported and Certified was Feb 28, 2007 in my CIBIL report. As a borrower, this chapter was closed and due to payment default my CIBIL score decreased from 789 to 690. In short, i was penalized and punished for payment default. After that, i found difficult to avail credit till the year 2014. Ideally, this defaulted account should remain in CIBIL database for 7 years from last reported date i.e. Feb 28, 2007. Therefore, after facing punishment for default, i was expecting this account to be removed from my CIBIL Database on or before Feb 27, 2014 with a grace period of 60 days. This is an ideal scenario, now let’s check the practical scenario.

To hurt my CIBIL score, most of the financial institutions will keep updating this defaulted account every year on Mar 31. This update is basically a slow poison. With every update, the entry of defaulted account will remain in my CIBIL database for one more year. Recently i observed that in my CIBIL report that my last Date Reported and Certified is Mar 31, 2015. What it implies is that my defaulted account will remain in CIBIL database till Mar 30, 2022 provided there are NO FURTHER UPDATES from the bank.

To summarize, instead of Feb 27, 2014 which was the ideal scenario now my defaulted account will remain in CIBIL database till Mar 30, 2022 i.e. for 8 more years provided bank will STOP future updates. This entry will KILL my CIBIL SCORE for 8 more years. In short, instead of 7 years i am being penalized for 15 years.

2. Defaulted Accounts are not closed in CIBIL Database:

Another strategy adopted by financial institutions is to keep defaulted account in ACTIVE state i.e. it is not closed even after settlement/written off/fully paid. Normally this strategy is adopted to retain unsecured loan entries to hurt credit worthiness of the borrower. I explained in my post, Low CIBIL Score – Check your Credit Utilization the impact of the open accounts on CIBIL Score. In some cases, if the full amount is not paid then also account remains active and reported as default. In one of the case, my client cleared the credit card bill before leaving India for offshore assignment in 2007. He paid the balance amount as informed to him by the bank through cheque. The online payment was not available/popular during those days. When he returned last year and checked his CIBIL report, he was shocked. The credit card account was written off and Rs 80,000 was reported as an amount overdue. On investigation, it was observed that the call center executive failed to inform him about 1 transaction of Rs 4,000. Therefore, it was reported as default and with penalty & interest amount overdue increased to Rs 80,000. His CIBIL score is now 638. Therefore, i always suggest my clients to check the CIBIL report after 60 days of any credit account closure. You should demand NOC for credit account closed by the financial institutions to avoid any future disputes. In rare cases, it’s a miss and you can always request financial institutions to close the account in CIBIL database.

3. Enquiry Information

This section is the hub for fraudulent enquiry entries to CIBIL database of a defaulter by the financial institutions. You may find entries of enquiry amount as low as Rs 1. Multiple entries is a common practice. Just to clarify that you can check your CIBIL Score as many times as you wish without impacting your CIBIL score. Any enquiry by financial institutions will have a negative impact on CIBIL Score especially if it is of low value. As this section is in the end, therefore, it’s a human tendency not to go through carefully. It is advisable to keep a tab on this section for fraudulent entries.

Through this post, i covered all 3 critical points used by financial institutions to kill your CIBIL Score. For any personalized consultation on your CIBIL Score, CLICK HERE to contact me.

Hope you liked the post. Do share your feedback/comments/queries through the following comments section.

Copyright © Nitin Bhatia. All Rights Reserved.

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Mithilesh Nikose
Mithilesh Nikose
9 years ago

Hii Mr. Nitin,

How can i improve my CIBIL score, i have a credit card which is overdue and because of that i can not apply for another one. please suggest.
Thanks

Nitin Bhatia
Nitin Bhatia
9 years ago

You may approach bank to clear all the dues. For general tips and suggestions, you can check my posts on CIBIL Score.

hareesh
hareesh
9 years ago

hi sir,

some body stolen my documents my salary is 12500(1year back). edit and submit to hdfc bank for credit card they find out that documents is fraud. so they put my name in CIBIL. now my salary 30,000 recently i applied HDFC personal loan. loan was rejected becoz submit the fraud documents. and again i applied tata capital it is also rejected. so what i do. my CIBIL Score is 777. can i file FIR or need to talk with HDFC Bank people?? please help me in this

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  hareesh

Firstly, you should discuss with HDFC and explain them. Also tell them to prove that Credit Card is in fact delivered to you. If they don’t listen then please file police FIR for cheating and fraud by unknown person and make bank a party to it.

rathod
rathod
9 years ago

Respected sir ,

i want your guidance in reference to cibil score. Few days back i was planning to buy electronics item . THE COMPANY OFFERED ME 0% NO DOWN PAYMNET SCHEME with BAjaj Fin company. I am salried person. . He told me ur score is 705 then ur loan disapproved .(750 is miniimum criteria) i am using credit card & one personal loan . I pay my all dues timely.(credit card payment/ personal loan EMI directly deducted from salary as well as never dishonor of cheque/ EMI ) . my take home is 35000/-The cost of product that i wanted to purchase was nearly 12000/-My question is why my CBil score is low . from where i can get free CIBIL transaction scores .
Can i register complaint about my score?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  rathod

You can pull out your CIBIL report by paying the applicable charges. You can check the same for low CIBIL score.

Abhi
Abhi
9 years ago

My dad “settled” a loan of around 4 lakhs 6-8 years ago and was a guarantor for his friend who messed up around the same time 6-8 years. Since then he has never taken any loan nor have we applied for any CIBIL score.He has no loan, no credit card for past 7-8 years.The score came as a surprise 785! with no mention of those past accounts and loans. But there is one strange thing in it. There is a 7 lakh auto loan on his name in 2014 which shows as settled in 6 months itself. When I asked him about it, he says its impossible, he never applied and paid for any such thing. And there is one 8.50 Lakh auto loan enquiry. That’s it. Do I raise a dispute and get the 7 Lakh thing corrected? But I think that is the one making his score shoot

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Abhi

You may raise a dispute with both CIBIL and the concerned bank. It can be the case of a mistaken identity or a fraud.

Manoranjini
Manoranjini
8 years ago

Hello Sir,

I had an education loan from SBT, which I settled in 2014 March. To fund the settlement, I had to take a personal loan from ICICI, in 2014 March. I closed the Personal loan in Sep 2015. In last two weeks, I had some emergency at home and applied for express credit with SBI, where my salary account is. SBI approved the loan, but in last minute, they said, they can not disburse money due to “Doubtful asset” marked against my education loan.
Upon this, I pulled my CIBIL report. It says I have a score of 791. Education loan is displayed first, with SUB status from 2012-2013 and DBT status for 7 months till 2014 March. Personal loan is marked ‘000’, no issues wit it.
I submitted NOC from SBT & ICICI to SBI, but they said they can disburse money only after the DBT status is cleared.
My questions

1. Is it possible to clear DBT status from history? If yes, how can I?
2. Does this mean, I could never ever avail any type of loan(home/auto/personal)?
3. Till how many years banks will consider the history to get me another loan?

(I understand from CIBIL website, that they keep history for minimum 7 years and banks will consider history of past 36 months. Is this a rule followed by all banks?)

I can share more details if needed, through email. Please help me to get out of this situation.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Manoranjini

1. As you settled your education loan therefore it is highly unlikely that DBT status can be cleared. A bank may change DBT status to “settled”, which will not help you.
2. The entry will remain in CIBIL database for 7 years from the date of last reporting. After that it will be removed and your score will improve.
3. Seven Years

Suryakant Sukale
Suryakant Sukale
8 years ago

Thank you Sir
Your post is very useful .

Suresh Rajendran
Suresh Rajendran
8 years ago

Hi Nitin,

I am Victim of this fradulent practice by Banks & need your advice to proceed further.

Currently i am repaying a LIC Housing loan for 35L for one year regularly without default even though my cibil score was 650 at time of sanction . Since i wanted to check my score now, i was surprised to notice that it has fallen to 614 due to this reporting by banks.

I have one bank info with date reported & certified of Aug 2007 still reflecting in the report.

Another bank with whom i had settlement in 2004 has closed date of Nov 2004 & reported/certified on Apr 2010 with one account number & the same bank has re-opened the written off amount with different account number & that has date opened as 2002 without any closed date & showing as date reported certified as Dec 2015.

I have raised dispute resolution mechanism with cibil for second bank, even though i dont need credit in short term now, i am worried about low score in Future.

Hence pls guide me in assisting on how to fight them agaisnt this fraud practice of theirs.

Thanks,

Suresh

Nitin Bhatia
Nitin Bhatia
8 years ago

You may wait for CIBIL’s decision in this regard then we will decide.

Suresh Rajendran
Suresh Rajendran
8 years ago
Reply to  Nitin Bhatia

Hi Nitin,

I got Mail update from Cibil informing that they are still awaiting update from Bank & keeping that information as disputed. They also advise me to contact Banker for quick resolution of this issue.

Pls let me know how to proceed on this & also whether keeping the account as disputed will increase my Cibil Score ???

Thanks in advance

Nitin Bhatia
Nitin Bhatia
8 years ago

I suggest you to wait. Let CIBIL handle the bank. A disputed account is not considered till the issue is resolved so it is not harming you but will not change your CIBIL score.

Suresh Rajendran
Suresh Rajendran
8 years ago
Reply to  Nitin Bhatia

Hi Nitin,

Again i got a new Cibil report with the same score 614 but the account has been marked in Red mentioning that some sections are marked as disputed. Also in the mail, they inform me to contact the bank for quick resolution while Cibil also will try to check with banker to get it resolved asap.

Hence pls let me know ur suggestions as i plan to change my LIC Housing loan to another bank once in Jan 2017 once the fixed term is over.

I understand changing the bank with low score of 614 will be difficult & is it possible to increase score in next one year since i have only one Home loan with me now.

Nitin Bhatia
Nitin Bhatia
8 years ago

As i mentioned, please wait for CIBIL’s decision and your score will not change. They will share revised CIBIL report with all the changes. As i have not seen your report therefore cannot comment what is harming your Credit Score.

Suresh Rajendran
Suresh Rajendran
8 years ago
Reply to  Nitin Bhatia

Hi Nitin,

I got update from Cibil that bank still say that i have to pay Rs7500 overdue even though i settled the amount in 2004 but did not get it closed.
Also i dont have the Settlement copy letter with me.

Cibil inform me to contact the banker as bank still maintain that i have to pay the overdue amount. Previously they gave the last closed date as 2004 & now they have made it as blank.

Pls advise me whether i have to file RTI against bank or whether i have to pay the money for closure even though i got it settled in 2004 itself ???

Thanks in advance,
Suresh

Nitin Bhatia
Nitin Bhatia
8 years ago

If the bank is PSU bank then you can file RTI to clarify.

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