Are credit scores dropping as lenders start reporting non-payment to bureaus?

The first wave of the Covid-19 pandemic resulted in a huge loss to public health and the economy during 2020. As post-relief measures, the RBI had announced a six-month EMI moratorium and later restructuring, for all borrower categories during 2020.

Post the moratorium tenure, lenders have been reporting a lot of default on the part of the borrowers as they are still struggling to get back their life and finances on track. This has led to impacting the credit scores of such borrowers which could severely impact their chances of getting future loans approved.

Now, the second Covid-19 wave has started in India with many States declaring lockdowns or restricted movements. While people were still getting their life slowly on track from the impact of the first wave, the second wave has come as a major setback. Post the moratorium, borrowers had to continue paying the EMIs on their loans, any default would have led to late payment charges and subsequent reporting by lenders to the credit bureau. This would have clearly impacted their credit score, which had not been impacted during the moratorium period.

Tips for borrowers to improve Credit Scores during these Challenging Times

• Borrowers should make payment of all outstanding dues to date and continue to ensure timely repayments of their loans
• Opt for a higher percentage of secured loans over unsecured loans
• Credit utilisation on credit cards should be limited to below 30% of the overall sanctioned credit limit
• Existing credit card dues can be converted into EMIs so as to ensure regular payments