HOW LOAN SETTLEMENT IMPACTS YOUR CREDIT SCORE, 5 REASONS YOU MUST KNOW
Published By Gurpreet Singh | 27 Apr, 2025
Settling a loan may alleviate financial stress, but it's crucial to know its potential negative effects on your credit score and overall creditworthiness.
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Here are some reasons you must know about loan settlement impacts your credit score:
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'Settled' vs 'Closed' Status
Settling a loan results in a 'settled' status on your credit report, indicating incomplete repayment and possibly lowering creditworthiness.
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Negative Impact on Credit Score
A settled loan can lead to a significant drop in your credit score. This decrease can hinder your ability to secure loans or credit cards in the future.
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Long-Term Presence on Credit Report
The 'settled' status remains on your credit report for up to seven years. This prolonged presence can affect your credit profile and borrowing potential over an extended period.
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Reduced Creditworthiness
Lenders may perceive a settled loan as a sign of financial instability, making them cautious about extending credit to you. This perception can limit your access to future financial opportunities.
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Potential Tax Implications
In some cases, the forgiven debt amount in a settlement can be considered taxable income, leading to unexpected tax liabilities.