In this day and age, when it is impossible to afford a decent lifestyle without the help of credit and loans, it is crucial that borrowers maintain a good CIBIL score. The CIBIL score is a three-digit number between 300 and 900 that reflects a borrower’s creditworthiness and repayment capacity. Lenders consider anything above 750 a very good CIBIL score and borrowers who have such a CIBIL score get offered loans on highly beneficial loan terms and conditions. On the other hand, instances of loan default and loan settlement are seen as a serious aberration of trust by lenders and credit rating agencies. Such cases, therefore, harm a borrower’s CIBIL score and hamper their ability to avail of a loan in future. This article focuses on loan settlements, what is written off in CIBIL, how a loan settlement affects a borrower’s CIBIL report and how can one remove the settled status from CIBIL.
What are Settled Accounts?
All borrowers avail of loans after proper planning. Almost everyone avails of an amount they can easily repay. However, sometimes, we find ourselves surrounded by situations that make our financial stability take a hit. When this happens, it becomes difficult for borrowers to honour their EMI and other financial commitments. When borrowers feel convinced that they cannot afford to pay their EMIs on time, they approach lenders and request a loan settlement. A loan is considered settled when a borrower and a lender agree to an alternate repayment term under which a lender agrees to close the borrower’s loan account or credit card by accepting an amount lower than the actual due amount. On the other hand, when a borrower closes a loan account or a credit card by paying the entire amount due, the account is considered closed.
Once you have settled or closed an account, your lender will pass on this information to credit information bureaus and the credit information bureaus will update your CIBIL report. If you settled the account, your CIBIL report will read ‘Settled’. On the other hand, if you closed the loan account by paying the entire amount due, your CIBIL report will read ‘closed.’ When a borrower closes a loan account, their CIBIL score goes up since they honoured a commitment they made to their lender. On the other hand, when a borrower settles a loan account, their CIBIL score takes a hit. Settling a loan account can make one’s CIBIL score drop by 75 to 100 points. Lenders also see loan settlements as an aberration of trust and therefore, settled accounts reduce one’s chances of availing of a loan such as housing loan or loan against property in future. It is, thus, that borrowers are advised against settling loans. If a borrower finds themselves unable to pay their EMIs, instead of requesting a loan settlement, they must approach their lender, explain their situation to them and request a loan extension to make paying their EMIs easier.
Can ‘Settled’ Status be Removed from CIBIL?
Once a borrower settles a loan, their CIBIL report will show the loan’s status to be ‘Settled’ and this information will stay on their CIBIL report for the next 7 years, making it impossible for them to avail of a loan on beneficial terms. But,
What is written off in CIBIL?
Can the ‘settled’ status be removed from CIBIL?
How to clear ‘written off’ in CIBIL?
Also Read: Know Why Is Credit Report Important?
Well, it is possible to clear the ‘settled’ status from your CIBIL report. However, the only way to do so is to clear the entire outstanding amount. Once you do so, obtain a no-objection certificate from your lender and submit it to the credit information agencies. Once you do this, the credit rating agencies will automatically update your loan account status from settled to closed. Check CIBIL report after a few weeks to make sure it has been updated. If you have settled a loan ever and you are planning to apply for a new one, know that your lender will ask you to clear the pending amount first and then apply for a new loan or they will offer you a loan on a very high rate of risk to cover up for the risk involved in lending you money.
Sometimes, a borrower’s CIBIL report may show ‘settled’ even when the borrower has not settled the loan account. This happens when a lender or financial institution passes on wrong information to a credit information bureau. In this case, the borrower can get the ‘settled’ status removed from their CIBIL report by raising a dispute with CIBIL. Here’s how to get ‘Settled’ removed from your CIBIL report if you have never settled a loan.
To be able to raise a dispute with CIBIL regarding any misinformation related to your CIBIL report or credit profile, you will have to open an account with the credit information agency.
Once you have created an account, log into it by entering your credentials.
Next, go to ‘Credit Reports’ and then to the ‘Dispute Centre’.
After this, select the ‘Dispute an Item’ option.
Select your ‘Dispute Type’ and ‘Submit’.
