A settlement against a credit taken by you clears your status as a borrower. However, this “settled” status against the loan amount or even against your credit cards impacts your credit score negatively. Your credit report will reflect that the amount you owed the credit institution was settled for a lesser amount. This affects your credit scores.
Credit Information Bureau (India) Limited (CIBIL) is the credit information company that maintains the record of all credit-related activities. It calculates your CIBIL score based on several factors such as loans and credit type, duration of credit, payment history, etc. It means if you make timely repayment of all the loans taken by you, you will avail of a good CIBIL score. If you default on the payment of your outstanding debts or delay the payment beyond the time frame extended to you, it will decrease your CIBIL score.
Did you know?
Closing your old credit accounts will not improve your Cibil score.
What is a "settled" status?
In relation to credit cards and loans, the term "settled" status is used when the borrower fails to repay the full debt taken from the bank within the specified timeframe. The bank and the borrower negotiate and agree on alternate terms of repayment. In such cases, the banks agree to accept the borrower's settlement amount.
Impact of "settled" status on CIBIL score
A “settled” status adversely affects your CIBIL score. Therefore, you should take only an amount of money as a loan or credit that you can afford to repay on time. The settled account appears in your credit report for seven years from the date of settlement. This is used by lenders to determine your financial health.
Difference between "settled" and "closed" status
There is a difference between these two terms, and they both impact the CIBIL score.
When you have paid some part of your dues (loan or credit card), then your credit report will reflect that as “settled”. This means that the credit institution has agreed to accept a payoff amount that is less than the amount you borrowed from it. In simple words, the credit institution bears the loss and the word “settled” poses a hindrance for future loan approvals for yourself.
When the account section in your credit report reflects a date next to the column under the heading, “closed” - this implies that you have honoured the repayment of the loan amount.
Credit cards settlement in India
A credit card settlement CIBIL is the last resort when you are unable to repay your credit card dues on time and want to avoid your dues multiplying every month. Credit card settlements are done in extremely rare cases. You have to follow these steps to initiate credit card settlements:
- Visit the bank or the department that issued the credit card
- Make an application through a credit card settlement letter mentioning that you are unable to make payment of your dues. You should mention in the letter that you want to negotiate alternate repayment terms.
- The department may accept or reject the application.
- If accepted, the issuer may agree on a certain settlement percentage or offer a revised repayment plan. The issuer can also approve to grant you a temporary postponement of loan payments.
- The credit card settlement depends on the agreement and negotiations between the borrower and the lender.
Also read: What is CVV Code in Debit and Credit Card?
How to remove settled status from CIBIL?
The following steps will help you understand how to remove the “settled” status from CIBIL:
- To remove “settled” status from CIBIL or to convert the “settled” status to “closed,” you have to clear all your pending borrowings. You can clear your existing status by paying the entire balance of the unpaid amount.
- After making the full payment, procure a no-objection certificate (NOC) from the bank or credit card issuer.
- Raise a dispute on the CIBIL's website.
- CIBIL will confirm the account status with the bank or issuer and change the status of your loan account from “settled” to “closed”.
For example, if you have taken a personal loan from HDFC bank in the past and have been unable to make a payment of the last five instalments due to a shortage of funds. You negotiate with the bank, and the bank agrees to settle your loan account at a certain amount. You pay that amount for your HDFC loan settlement. This payment is now reflected as "settled" in your credit report. To avail of a status that indicates "closed" in your Cibil report, you will have to repay the entire amount of the five unpaid instalments to the bank. Similarly, if you have an HDFC Bank credit card that you want to close, pay the full debt and apply for an HDFC Bank credit card or NOC letter online. You can also use the net banking facility to take the no-objection certificate from the bank. The No-objection certificate (NOC) shows that you do not have any dues pending.
Written off settled status in a credit report
When a borrower fails to pay the outstanding debt or loan taken from a bank for more than 180 days, the bank has to write off the unpaid amount. The borrower's loan account is reflected in the credit report as "written off". The post written off status impacts negatively on your credit score and gives lenders an insight into your financial inability. If you have a written-off status in your credit report, your loan or credit card applications will likely get rejected in the future because the lenders will doubt your credibility.
Does CIBIL score affect the application for a VISA?
Many institutions use the CIBIL score to determine your creditworthiness. Banks and financial institutions use it to check whether you will fulfil your loan obligations in the future and decide whether to approve your loan application. If you have a good CIBIL score, your loan is more likely to be approved. Before approving your VISA, the authorities might also ask for your CIBIL score. If you do not have a good CIBIL score, it can affect the approval process of your VISA. If you are a VISA holder and want to take a loan in a foreign country, then your CIBIL score becomes an important indicator for your loan approval.
How to improve CIBIL score after credit card settlement?
You can improve your CIBIL score after credit card settlement with the help of the following tips:
- Get your loan account status in your credit report changed from settled to closed. Settled status hurts your credit score. Hence, you should pay off your entire debt to get a closer status in your credit report and improve your CIBIL score.
- Pay your instalments regularly to maintain a good repayment record. A repayment record is an important factor in determining your CIBIL score. If you pay your loan instalments or credit card dues On time, you are clean. A regular repayment track will be reflected in your credit score.
- Do not indulge in any type of excess credit that you may not be able to repay. Apply for a practical amount in accordance with your payment ability.
- Always try to limit your spending to 50% of the total credit limit offered to you. Spending within your credit limit shows your discipline and positively impacts your credit score.
- Do not stop using your credit card. It would result in credit inactivity that does not positively impact your CIBIL score. Use a small amount of your credit limit and regularly pay off your dues every month.
Benefits of having a high CIBIL score
CIBIL score is a three-digit number between 300 to 900. Your credit history, repayment track record, loans or credits taken by you, utilisation of these loans or credits, the status of your loan accounts, settled, closed or written off etc. Are considered to determine your CIBIL score.
A higher CIBIL score shows your creditworthiness and positively impacts the lender. Having a high CIBIL score has the following benefits:
- Fast and hassle-free approval of your loan application.
- Banks and financial institutions will not hesitate in sanctioning higher credit limits.
- Credit card issuers will provide you with higher credit limits.
- If visa authorities ask for your CIBIL score and have a good CIBIL score, it will not trouble your visa application approval.
- Apart from easy financing, a good CIBIL score will also earn you a discount on processing fees and other charges for loan applications.
Factors that can have a negative impact on your CIBIL score
- Irregular repayment track record, default payments off loan instalments and outstanding credit card dues.
- Using more than 50% of your credit limit has a negative impact on your CIBIL score.
- If you make multiple credit applications for credit cards or loans and any applications have been rejected recently, The lenders will doubt your creditworthiness. Therefore, first, you should improve your CIBIL score and then apply for a loan or credit card.
- "Settled" or "written-off" the status of your loan accounts in the credit report also decreases your CIBIL score. Hence it is better to pay your full debts to get a closed status for your loan accounts.
- If you do not have a good mix of secured and unsecured loans, It can have a negative effect on your credit score. If your credit history shows both secured and unsecured loans, the lenders assume that you can handle both types of loans and are more likely to offer you credit.
- Having a short credit history is also not a good factor for your CIBIL score. It is better to build a credit history from an early age as per your source of income and ability to pay off your debts on time.
A good CIBIL score helps to maintain a healthy credit profile. We are sure you have found this article very informative in understanding how to remove settled status from CIBIL. You can download the Khatabook app for the latest updates, news, and other information regarding finance and borrowings.