Did you avail the EMI moratorium offered by RBI, to ease Covid-19 related financial burdens? Wondering if your credit score will be impacted by this move? Continue reading to find out the answer.
EMI Moratorium & Its Impact on Credit Scores
The RBI had announced an EMI moratorium for borrowers to reduce their financial burdens due to the lockdowns caused by the Covid-19 pandemic. The moratorium was offered from 1st March and ended on 31st August, 2020. Borrowers could skip paying their EMIs for the six-month period.
When the moratorium was announced, many borrowers raised questions on whether opting for it would impact their credit scores. Generally, if a borrower skips EMI payments, then it causes a negative impact on his/her credit score. However, the RBI had announced that non-EMI payments during the moratorium period will not cause any impact on one’s credit score.
If a borrower had opted for the moratorium, as per RBI guidelines lenders should not treat is at default. This means, your bank/NBFC will not report your EMI moratorium as a default to the credit bureaus when they send in the data. Borrowers do not have to worry about their credit scores getting downgraded as a result of the moratorium.
One-time Restructuring and Its Impact on Credit Scores
After the end of the moratorium, the RBI has announced a loan restructuring scheme to further ease the financial burden to borrowers during these challenging times. As per the loan restructuring offer, borrowers can work with their lenders to negotiate and redraw the terms and conditions of their ongoing loans. The restructuring is offered as a one-time offer and is valid until 31st December 2020.
As per RBI guidelines, borrowers do not have to worry about their credit scores getting impacted, because they opted for the EMI moratorium. However, they have to be careful with restructuring. Defaulting on the EMIs of the restructured loan can have a severe adverse effect on their credit scores.
There may be long-term credit repercussions due to the moratorium
You may have come across the phrase, “there are no free lunches.” This probably holds true regarding the moratorium and credit scores. While the RBI has assured that there will be no impact on credit score due to the moratorium, senior banking experts and credit industry leaders believe that there may be long-term repercussions.
Both retail and corporate borrowers who have taken the moratorium are likely to be tagged as “high-risk” profiles when they apply for loans in the future. This is because lenders consider borrowers who had taken the moratorium as having a cash crunch problem. It shows that these borrowers had severe cash flow problems, and that’s why they opted for the moratorium. As a result, borrowers who had opted for the moratorium are likely to be at a disadvantage when they apply for loans in the future.
So, how to reverse the impact of the moratorium on your credit score?
If you have taken the moratorium, then you need to be extra vigilant to ensure that it doesn’t affect your long-term credit prospects. Here are a few tips to help you keep your credit score in perfect shape:
- Check your latest credit score to see where you stand
Before you begin improving your credit score, the first step is to see where you stand. You can quickly check your credit score for free by using CreditMantri. Powered by Equifax, CreditMantri provides you with your latest credit score in just a few minutes.
Once you have the latest credit score in hand, you can quickly see whether it has been impacted by the moratorium or not. Ideally, your credit score should not have been affected by the moratorium. But checking it can help you avoid any confusions later on.
- Apply for a detailed Credit Report to see if your Moratorium has been Reported to the Credit Agency
If you had opted for the moratorium, then it’s highly recommended that you check your detailed credit report to see whether your lender has reported the moratorium or not. There may be possibilities of errors in the data sent by your bank and the data received by credit bureaus. By checking your credit report, you can rectify any inaccuracy.
For example, you may have two loans with your bank. Say, a home loan and a personal loan. Let’s assume that you had opted for the moratorium on the personal loan but continued to pay the EMIs of the home loan. Your bank may have mistakenly reported that you had opted for a moratorium on both the loans. This can have a bigger impact on your credit score.
By requesting for a detailed credit report, you can spot any such inaccuracies and report it to your bank and get it rectified.
If you’re wondering where to get the latest copy of your credit report, check out CreditMantri. Powered by Equifax, CreditMantri gives you a detailed copy of your latest credit report. All you have to do is provide a few key details like your name, mobile number, and PAN and your credit report is emailed to you within a few minutes. Safe and secure, checking your credit score and requesting your credit report via CreditMantri doesn’t affect your scores.
So, go ahead, get the latest copy of your credit report and see if the moratorium has been reported correctly to the credit bureaus.
Ideally, opting for the moratorium shouldn’t impact your credit score. It’s the responsibility of the borrower to check whether the moratorium has been reported correctly by the bank to the credit agency. So, get your latest credit score and credit report to spot and rectify any inaccuracies.
Finally, a word of caution. Though the EMI moratorium may have provided you with immense financial relief during the lockdown, it may leave a long-lasting mark on your credit report. To reverse this impact, ensure that you pay your bills on time, do not default EMIs and limit credit card usage to maintain and boost your credit score and credit history.