Bankruptcy is a legal term used for individuals or companies who cannot pay outstanding debt. By declaring bankruptcy, an entity seeks relief from all existing debt. A bankruptcy may be due to a huge financial loss in business or an accident or loss of job.
A court order is used to declare bankruptcy. Bankruptcy can lower your CIBIL score to poor (i.e. ranging from 300-500) and this makes it extremely difficult to secure credit cards or loans.
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Listed below are some of the ways in which a person can rebuild his CIBIL score post-bankruptcy:
Keep Reviewing Your CIBIL Report: There are various online aggregators and websites which offer the facility of free credit score. You can check credit score and credit report for free, as many times as you like. This helps track the credit report. After obtaining the credit report, go through the information and check if it’s accurate. Check for errors or inconsistencies in your credit report and if you spot any, get them rectified.
See Also: Check Credit Score Online
Apply for a Secured Credit Card: One of the most important criteria for issuing a secured credit card is a fixed deposit. A bank fixed deposit helps you avail a secured credit card. If you have a fixed deposit at the bank and are unable to get a normal credit card, then go for a secured credit card using the fixed deposit as collateral. Banks would liquidate the FD in case of a default. You can use the secured credit card to build your credit score. However, do not default or delay repayments on the credit card. Make sure to utilize a maximum of 50% of the credit limit on your secured credit card.
Pay Your Bills on Time: Banks and credit institutions analyze repayment history to evaluate the credibility of the borrower. You can automate fixed monthly payments on loans. In this way you will not miss payment deadlines. Repay outstanding amounts on your credit card each month. Do not pay only the minimum amount due on your credit card. This could land you in a debt trap.
See Also: Cibil Score For Credit Card
Avail a Car Loan: You can avail a car loan, a year or two after declaring bankruptcy. This helps rebuild CIBIL score if you are consistent with the repayments. However, make sure to avail an affordable car loan that can be paid off easily. Check interest rates offered by banks on car loans. Lenders often charge a higher interest rate on such loans.
Stay within Credit Limits: After securing a credit card from a bank or financial institution, make sure to use it wisely. An ideal credit utilization ratio or CUR is less than 30% of the credit limit. Try to maintain low credit card outstanding and repay debts within the given time period. Contribute to your credit score by maintaining a healthy credit utilization ratio and pay off bills in time. Do not get too close to the prescribed credit limit as it may hurt your credit score.
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