Have Settled Your Loan Amount? Know These Tips to Improve Your CIBIL Score Again!

There is a misconception among people that loan settlement means loan closure however, there is a huge difference between the two. Loan settlement refers to the process of settling an outstanding debt through an agreement between the lender and borrower, whilst loan closure simply involves repaying the due amount and closing the loan on time.

In case of an emergency or job loss, or in any other situation that puts the borrower in a position where they will have difficulty repaying the loan on time, they might choose loan settlement. Loan settlement is a process in which a borrower negotiates with the lender that instead of paying EMIs, s/he ends up paying a mutually agreed-upon settled value in a lump sum amount later on. On paper, doing this process will be listed as settled in the records. Loan settlement is looked down upon by various credit agencies and financial institutions. It might help you in a way that takes the burden off your shoulder for a brief time but it can harm your credit score and possibly your prospects of obtaining a loan or credit card in the future

In case you have settled the loan amount with your lender, you must have noticed a stark drop in your Transunion CIBIL score. However, fret not. There are still some ways you can adopt and learn how to increase CIBIL score. Let’s get down to it.

Check your CIBIL report on a regular basis: This is a simple but one of the most frequently ignored steps. To keep a decent credit score, you should check your Credit Information Bureau of India Limited’s (CIBIL) report on a regular basis. Analyzing it thoroughly and verifying that there are no errors might put you ahead of the game. If any mistakes are discovered, such as a wrong account reported, wrong amount printed on the sheet, or payments that were not even made, you must contact CIBIL to have them addressed. Ignoring this can have a detrimental impact on your score and can hamper your journey of how to increase CIBIL score.

Start to pay your bills and dues on time: This is one of the most crucial steps you need to take and will be advised by people on how to increase CIBIL score. Paying all your dues, credit card bills, and other outstanding EMIs or debts on time can demonstrate your credit management ability and financial discipline which in the long term will help you to improve your credit score.

Try to keep Your Credit Utilization Ratio Low: The credit utilization ratio is the percentage of your current credit usage to your total available credit. You should strive to maintain this ratio under 50%. Some experts even suggest you should keep it within 30%. Spending more credit consistently may also suggest financial insecurity and can harm your credit score. You must borrow responsibly and use caution when using credit cards when you are learning how to increase cibil score.

Limit your number of credit card applications: When you apply for a new credit card or loan, an inquiry is initiated to check whether to approve your loan application or not. When you are on the journey of how to increase CIBIL score you should ensure you limit your new loan applications as it may convey that you are incapable of managing your credit and finances.

Don’t close your oldest credit card: To increase and maintain your CIBIL score, make sure you do not close your credit card because your Transunion CIBIL score is also affected by the duration of your credit history. As a result, keeping your credit accounts open for an extended period of time is advisable.

Keep a good Debt-to-Income Ratio: The debt-to-income ratio is the percentage of your monthly income that goes toward EMIs and credit card payments. When determining your creditworthiness, a financier will normally take this ratio into account. To demonstrate your capacity to handle your credit properly, you should strive to maintain your debt-to-income ratio below 40% as a general rule.

Last but not least: Improving and keeping a decent Transunion CIBIL score does not happen quickly. It requires time and careful planning. It is critical to be consistent in your efforts and remain focused on instilling excellent financial habits.

Some common FAQs that are on the mind of most the borrowers

Q1. Can I get the settlement removed from my CIBIL credit report?

Yes. Pay off your loan debt and request a “No Objection Certificate” from your lender. This will be updated by the lender to CIBIL. Additionally, you can file a dispute on the CIBIL website with all relevant documentation demonstrating that the debt has been totally paid off. The conclusion of the disagreement will take 30-45 days, after which the status of the settlement will be amended.

Q2. My debt condition is bad and I am considering loan settlement. Will it still impact your CIBIL credit score?

Yes. Even a single loan settlement will have an effect on your Transunion CIBIL. Accepting a loan settlement offer from your lender or bank requires caution. It should only be used as a last resort. Look for different ways to repay the debt rather than settling for a lump sum.

Q3. How long does a loan settlement remain on a CIBIL credit report?

It remains for seven years. CIBIL will preserve the status on your credit record for 7 years, during which time lenders and banks may refuse to give credit to you due to the status of the settlement. Alternatively, because of the risk connected with you not repaying the loan, you may be granted loans at substantially higher interest rates.

So we are saying,

Loan settlement is regarded as a negative and might have a negative impact on your Transunion CIBIL score. This is because it shows that the borrower was unable to manage credit properly. And, because credit scores are important indicators of financial health, a poor score can jeopardize an individual’s future loan or credit card application possibilities. However, it is important to emphasize that this effect is just temporary because CIBIL normally keeps records for 7 years and there are ways to restore your creditworthiness. If you want to know how to increase CIBIL score from 600 to 750, follow the aforementioned tips.