Debt. A four-letter word that can be a huge thing to deal with when it comes to not being able to repay it! With the ease of loans and credit availability, it has become easier for all to access some money when they actually don’t have it! However, with great power comes great responsibility.
So, when one is blessed with having the power of accessing money when they don’t actually have it i.e. in terms of credit or loan, they have equal responsibility of repaying the credit on time and with the interest if charged any! Initially, it may appear that it makes no change or it makes no difference, but actually, it does. Several missed payments, delayed payments get the credit score down. And how will that happen? We all know the basic concept of credit score and cibil score and how it works. Starting from payment history to the amount owed, credit mix, length of credit history, and new credit; the algorithm applied by credit bureaus make the score. The major factor, payment history has 35% weightage, and the missed, delayed payments are the major concerns there.
Let’s talk about debts now. Tue good debts and bad debts. Good debts are something where you have invested by taking the credit from outside and today you are sure that it is going to give you good returns. Something more than you have invested including the interest. Bad debt is completely reverse than it. You have invested some money by taking credit and forget the interest that you have to pay otherwise but even the basic investment that will not get returned.
Debt is definitely a responsibility that one has to take care of. But when it comes to bad debts compared to good ones, the borrower is shaken. As, whatever form the credit was taken, he/she has to pay for it. And eventually, if they stop that will hamper the score. Once suppose the loan was taken when the credit score was not even established, i.e. Loan with no CIBIL score, this is even a bigger issue.
Let’s understand why a person is without a score. A score is established after six months of any credit line that is taken. Either a credit card or any lone that is taken and it’s usage and repayment is observed and then the score is established. So, anyway, a loan with no cibil score is difficult to get and on top of that it is some kind of unsecured loan or maybe secured for that matter, is taken and not repaid on time or with missed payments, the score even before it is established, crashes! Now since one is already drowned in the bad debt that is a huge thing that is to be taken care of, a few missed payments have messed it up with the cibil score. What can be a few of the things that are hence affected?
Higher interest rate: since the repayment is not done, the interest on the previous amount is now applicable making the original amount more.
Rejection in loan applications: Since history shows mismanaged funds, it is difficult to get new credit and face rejection.
Home loan rejection: Suppose the applicant had applied for a home loan which was yet to be approved, there is hardly any chance of getting it approved then.
Mental stress: The debt collectors will keep on dialing for the amount and that will add up to the stress with all of these.
Employment Risk: These days even the employers check the score while offering a job as that shows how financially responsible an individual is, and because of bad debt, that has already pulled one down, and the score, eventually, has to face the loss of a job as well!