Credit score plays a crucial role when you apply for a loan or a credit card. Lenders determine your loan repayment capacity with the help of your credit score. Having a low credit score negatively impacts your chances of getting loan approval. Similarly, your payment behaviour also affects your credit score.
Making timely payments can boost your credit score. If there are missed or delayed payments, it not only lowers your credit score but also reflects a payment default in your credit report. Hence, it is important to understand how to remove your name from the credit defaulter list.
Your future loan approvals will not be affected if you remove your name from the credit defaulter list. It will additionally ensure that you can potentially negotiate favourable loan terms.
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What is the Credit Defaulter List?
In India, no credit rating agency maintains a credit defaulter list. They maintain individual credit records like credit reports and credit scores, which they prepare on the basis of the data provided by financial institutions. However, the Reserve Bank of India (RBI) has mandated all banks and non-banking financial corporations (NBFCs) to send the defaulter's data to TransUnion CIBIL™. This data includes details of the borrowers with the following:
- Suit-filed accounts of willful loan default of Rs. 25 lakhs and above
- Suit-filed accounts of loan default of Rs. 1 crore and above.
The RBI has classified defaulters as willful and non-willful. A willful defaulter is making minimum to zero payments purposely, despite having the paying capacity.
However, a non-willful defaulter fails to make payments due to a lack of funds. TransUnion CIBIL™ has a record of both suit-filed and non-suit-filed willful accounts.
The list of accounts with a suit filed on them is available on TransUnion CIBIL's™ website. The lenders can access this list to conduct due diligence before issuing loans.
How to Remove a Suit-Filed Account From Your Credit Report?
In case the borrowers do not make the loan repayment, the lender has the option to file a lawsuit against the borrower to recover dues. Your name will be included in the suit-filed defaulter database if you default on a loan amount of Rs. 25 lakhs (willfully) and Rs. 1 crore and above. If a lawsuit is filed against you, it remains on your credit report for up to 7 years. If no action is taken, it could potentially have a negative impact on your credit score. However, you can remove your default account from the CIBIL™ defaulter list by following the measures given below.
- Request your lender to settle the case out of court and repay the due amount in full. Your lender will issue an NOC (no objection certificate), which will help you get your default account removed from the credit report.
- In case you are not capable of paying the full amount, you can ask for a concession. After clearing the due amount in agreement with your lender, request for withdrawal of the lawsuit. However, in such cases, where the lender provides a concession, a 'settled account' will be reflected in your credit report for 7 years. This may potentially affect your credit score and can have an impact on your future loan applications.
- In case you are unable to clear dues, you can explain your financial situation and inability to pay in a court of law. In such a situation, the lender will propose an amount for settlement. You will need to pay this amount.
- In case of a mistakenly filed lawsuit, you can raise a dispute with the credit bureau to remove the CIBIL™ defaulter list The credit bureau will investigate the matter and if there is no default on your end, your credit report will be updated.
- If the lawsuit is unfair, you can reach out to the lender to discuss your stand and seek legal help. The lender may agree to withdraw the case and propose a settlement to avoid legal proceedings.
How to Avoid the Credit Defaulters’ List?
Getting your name removed from a credit loan defaulter list can be a time-consuming and exhausting process. Hence it is best to avoid getting a CIBIL™ suit filed against you. Below are some of the key tips:
Manage Your Finances Well
Apply for a loan according to your repayment capacity and try to maintain your debt-to-income ratio below 30%.
Pay Your Dues on Time
Always make payments towards your loan on time and avoid delays. In case there is an unavoidable situation, inform your lender and explain the delay. He may give you options to clear dues.
Regularly Check Credit Score
Keep an eye on your credit score and review your loan accounts. Check for any errors and report immediately if you have identified any errors.
Avoid Taking Multiple Loans
Avoid sending multiple loan applications as it shows that you depend too much on credit. It also results in multiple hard inquiries and may affect your creditworthiness.
Effect of the Credit Defaulter Status on Your Loan Approval
Getting labeled as a credit defaulter may potentially lead to rejection of your loan applications. Even if the loan application is not rejected, chances are high that you will get a loan at a higher interest rate because of low creditworthiness. Additionally, you will be seen as financially incapable of repaying, thereby affecting your creditworthiness. It also reflects your inability to properly manage your finances. Additionally, the lack of control over expenditure shows your irresponsible financial behaviour.
Conclusion
To avoid getting a lawsuit for credit default, an effective solution could be making timely payments. Too much dependence on credit can put you in a spot in the eyes of lenders and affect your future loan applications. Follow the above measures on how to remove your name from the credit defaulter list and work towards maintaining a healthy credit score to regain your creditworthiness.
In case you are looking for financial support and guidance for availing various loans including personal loans, auto loans or business loans, Shriram Finance can help you with your needs without ending up on a credit defaulter list. Apply for a business loan today and level up your business.
Key Takeaways
- Getting a suit filed against your loan account and your name appearing in the credit default list makes you a high-risk borrower.
- Get your name removed from the suit-filed account list by clearing dues, going for a settlement with the lender or seeking legal help.
- Avoid getting your name on the credit default list by regularly reviewing credit reports, paying on time and having a low credit utilisation ratio.
- If there is a delay in the payment, inform your lender beforehand and explain the reason for the delay. The lender may give you the option to clear the dues either by extending the tenure or by giving a concession.
FAQs
1. How do I get my name removed from the credit defaulter list?
Make the full payment including pending dues and ask your lender to issue an NOC. You must submit this NOC to the credit agency for removing your name from the defaulter's list.
2. For how many years, does the credit report keep a record of defaults?
Your credit report keeps a record of loan default for 7 years.
3. Can a Credit defaulter get a home loan?
Yes, a credit defaulter can get a home loan if he has cleared all the outstanding dues, has a high income or applies for a loan with a co-applicant having a good credit score
4. How to get my name removed from the RBI defaulter list?
To remove your name from the RBI defaulter list, clear the pending dues and request the bank to withdraw the lawsuit filed against you. Additionally, request the bank to update the credit bureau on repayment and withdrawal of the lawsuit.
5. How do I check my name on the defaulter list?
To check whether your name is on the defaulter list, visit the CIBIL™ website and download the credit report. You can check your loan accounts for any payment defaults.
6. For how long does CIBIL™ keep a record of defaulters?
The CIBIL™ does not maintain any defaulters list. However, your credit history will have a record of a default for up to 7 years.
