How To Improve CIBIL Score After Settlement?

The possibility or probability of your credit card or a loan approval increases as your CIBIL score reaches closer to 900. Your CIBIL score keeps changing with your financial behavior, and a CIBIL score of 750 or above is considered good.

How Loan Settlement Impact CIBIL Score?

A bank or other lender will notify CIBIL when it is writing off a loan. CIBIL does not take into account the fact that the relationship between the bank or lender and the borrower has ended. They refer to the deal as settled rather than concluding it. A loan term settlement is considered poor credit behaviour, and the borrower's credit score declines by 75 to 100 points as a result.

This record has been held by the CIBIL for almost 7 years. Therefore, if the borrower needs to take out a loan at that time, it is possible that the lenders will disapprove of them and try to avoid offering them any loans. Before granting a borrower a loan, banks and other lenders primarily analyse his prior repayment history. Additionally, lenders and banks will not approve the loan if the borrower's settlement is listed on his credit record.

Role of Bank/Lender on CIBIL Score

Lenders or banks may give borrowers a One Time Settlement of the Loan if they are having genuine difficulties making their loan payments. A choice is presented to you by the lender or the bank after six months have passed with no dues being paid. They will evaluate factors like job loss, an accident, or a major medical condition, as well as other factors like these. The lender or bank officials meet with the borrower, assess his predicament and the sincerity of his issue, and then decide whether to write off the difference between the amount paid and the amount due. The lender or the bank subsequently declares a loss and releases the borrower from responsibility. While the borrower may perceive it as a sign of comfort because he would no longer be on the list of recovery agencies, he is unaware of the fact that he pays a high price for the same.

Lack of Awareness in Borrowers

The One Time Settlement offer is accepted by borrowers who are in a bind but are ignorant of the impact it has on their credit score. They are unaware of the fact that it lowers your credit score more than you might think. As CIBIL will maintain the record for those 7 years, it can make it difficult for the borrower to obtain a loan during that time.

Way out for Borrowers

Do not accept your lender's or the bank's first offer of the One Time Settlement option if you, the borrower, are having trouble repaying your loan due to circumstances like unemployment, an accident, or a serious medical condition. Don't forget that the settlement will lower your credit rating. Instead, you could try to sell off some of your assets or a portion of your portfolio to pay off the loan. Please get in touch with your family and friends if you are unable to do that. Any settlement should be avoided.

Keep the settlement as your final resort if you are without other options. However, you might speak with your lender or bank about extending your payback duration, getting a shorter repayment term, or getting the interest waived for a while.

Make sure you check your credit score and report to see where you are after a decision has been made with your lender or the bank. When you are aware of your credit score, try to repay all of your debts and practise responsible credit behaviour. Within the following 12 to 24 months, this will raise your credit score.

Ways to improve your CIBIL score post settlement:

Listed below are a few ways to improve your CIBIL score after settlement:

1. Ensure to Receive the NOC: Once the card has been closed, ensure that you receive the NOC. The NOC indicates that you are a responsible cardholder and hold no dues with the bank. 
2. Use the Credit Card Smartly: It is important that the credit card is used smartly every month. Up to 40% of the credit limit can be used in a month. This way pending payments can be cleared. 
3. The Right Loan must be Applied for: The different loans that are available are unsecured loans and secured loans. Secured loans used to stable asset purchases, while unsecured loans are used for depreciating asset purchases. 
4. Utilise Credit Cards: Credit cards must be used to build the credit score. In case the credit card is not used, the credit score may fall because of lack of activity. It is important that the full amount is paid every month. 
5. Do not Enquire or Apply for Loans Regularly: Once a loan has been closed, it is important that you do not apply for another loan immediately. Any loan rejections will lead to the credit score falling. 
6. The Credit Limit must be More than 50%: The amount of money available on the credit cards plays a role in the credit score. It is important that more than 50% of the limit that is available in the credit card is not used. 
7. Outstanding Dues must be Cleared: It is important that all dues are paid in full and on time. Any payments that are due will lead to a fall in the credit score. 
8. The Account Status must be Converted to Closed: Once the loan is cleared, the status of the account must be converted to closed. This shows that all debts are cleared. 

A good credit score can help you secure lower interest rates on loans and credit cards.

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