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How Does Bank Loan Settlement Impacts Your CIBIL Score

how does a settlement affect your credit

If you are one of those guys who have availed a bank loan that may be a home loan or a small amount of personal loan or you have used credit card and haven’t been able to pay the amount in time, this article might be worth reading for you.

At this point of time, you would be approached by bank recovery agents or you might receive calls from your lender that you have the chance to settle the bank loan which means you are asked to pay a much lower amount than what you are owing to your lender. The CIBIL score ranges from 300 to 900


Question: Does Bank Loan Settlement Impacts My CIBIL Score or Not

The answer to the above question is Yes

Settlement of banking loans is only a temporary solution to your daily worries like frequent reminders by your lender to make payment and harassment by the recovery agents, but it is not a permanent solution. According to Credit Bureau rules, all cases of “Non Payment of Loans in Full” have to be reported to CIBIL and CIBIL would inturn give you a much low credit score once you have made a settlement against your bank loan.

Example: If you have a bank loan which you are unable to pay and you decide to settle the bank loan with the bank. You would also receive NOC from your bank in such a case after you get your loan settled. Your bank would report your bank loan settlement case to CIBIL and CIBIL would mark you settled for next 7 years and it becomes quite difficult for any individual to get a loan passed in the next 7 years

and even after 7 years, you need to work quite hard to improve your credit score to enable yourself get a bank loan or a home loan.

Normally banks and other financial institutions deny to grant loans when you have a credit score of less than 750.  In case you want to “settle your loan” make sure you might not be able to avail any home loan, car loan or personal loan for atleast next 7 years as it gets reported to CIBIL.

Question – How to Remove Name from CIBIL Defaulters List

Sol: See, there are two things once you default on your loan or make a settlement with the bank. You get a low credit score on your CIBIL report and also you are marked with the word “Settled” in your report. The only thing which you can try is to go for a secured loan like loan against fixed deposit or home which you are owing and repay it comfortably whenever the EMIs are due. But sometimes it becomes quite difficult to get a secured loan from the bank too. I have also seen some people having multiple loans and after making the default on first loan, their credit score got worse. But after making timely payments on other loans for next three years, they were able to improve their credit score.   Second way to improve CIBIL score is by making timely payments of bills and EMIs (this not only save you from late payment charges but also helps you to improve your credit score), having less number of credit cards, utilising least possible credit card limit

Post Your comments if you have some bank loan settled or you have some query regarding improving CIBIL Score?

Category: Credit

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