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Business News/ Money / Personal Finance/  CIBIL: Settled your loan? Here's how it will impact your credit score
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CIBIL: Settled your loan? Here's how it will impact your credit score

A loan settlement typically happens after you’ve missed some loan payments, and these missed payments will be reported on your CIBIL report, which can bring down your credit score.

The loan account will be listed as ‘settled’ on your CIBIL report, which can be seen less favourably by lenders than a fully repaid account. Premium
The loan account will be listed as ‘settled’ on your CIBIL report, which can be seen less favourably by lenders than a fully repaid account.

Settlement of loan is something any loan defaulter likes to go for but it is not always a good option to go for. When a borrower opts for loan settlement, it adversely affects the credit score.

Loan settlement can impact the credit score - here's why:

Missed payments: A settlement typically happens after you've missed some loan payments, and these missed payments will be reported on your credit report, which can bring down your credit score.

Unpaid debt: The settlement itself indicates that you didn't repay the loan according to the original agreement. This can be a negative mark on your CIBIL history.

Settled status: The loan account will be listed as ‘settled’ on your credit report, which can be seen less favourably by lenders than a fully repaid account.

The impact on your score can vary depending on your credit history and the severity of the delinquency. 

Generally,  a loan settlement can bring down your score by 100 points or more. However, it’s important to remember that your credit score is based on several factors, and over time, the impact of a settlement can lessen with a good payment history on other accounts.

Impact on credit score is contingent upon a couple of other factors:

How much delinquency was there? It is vital to note how many payments were unpaid before you opted for settlement. The longer you were delinquent, the greater the negative impact.

Credit history: If you have a strong credit history with a good track record of on-time payments, the settlement may have a less significant impact than if you already have a history of missed payments.

ALSO READ: These are 5 warning signs of credit score problems. Details here

While loan settlement can hurt your credit score, it can also be a way to manage debt if you're struggling financially. It's important to weigh the pros and cons carefully before deciding if this is the right option for you.  Consider talking to a credit counselor or financial advisor for personalised guidance on your situation.

Frequently Asked Questions:

Should you keep checking your credit score from time to time?

Yes, it’s recommended to keep track of your credit score regularly to stay informed about your creditworthiness. 

What is the immediate impact of bankruptcy on credit score?

Bankruptcy leads to an immediate drop in your credit score. The severity of the drop depends on various factors, including your credit history before filing.

Does bankruptcy lower the chances of raising a credit?

Once an individual files for bankruptcy, lenders view him/her as a high-risk borrower, thus making it difficult for him/ her to seek new credit lines or loans. And the credit is offered at a higher rate of interest and less favourable terms.

What does the CIBIL score above 700 indicate?

A CIBIL score over 700 shows a good credit history and demonstrates to the lender that you are likely to repay the loan on time.

What is the key disadvantage of taking loan with poor CIBIL score?

The key disadvantage is that lenders give loan at a higher rate of interest as compared to borrowers with better credit scores. They may also tell them to give a higher down payment.

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Published: 27 Mar 2024, 11:46 AM IST
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