LSS in CIBIL: The Credit Score Detail You Must Know

LSS (Lender Settled Status) in your CIBIL report signals that a loan was closed by paying less than the full outstanding amount. While it may resolve immediate debt, it negatively affects your credit score and future loan eligibility. Understanding LSS is crucial for managing your financial reputation. Read on to know!

Importance of LSS in CIBIL Report
 

LSS in the CIBIL report holds importance from different perspectives. Let’s understand how it matters to different entities:

1.    For Borrowers

●    Reminds you about Past Repayment Issues: LSS in the CIBIL report will remind you that you were unable to repay the full amount of the loan as a borrower because of any financial obstacle. This encourages the borrower to repay the new loans on time and maintain financial discipline.

●    Affects Future Loan Applications: LSS in your CIBIL report reflects your repayment behaviour and thus, lenders may consider you a risky borrower. If offered, loans can be at higher interest rates.

●    Influences Financial Credibility: Although the loan account is closed in both situations, your creditworthiness is adversely affected by an LSS (settled) status compared to a fully "Closed" account.

2.    For Lenders

●    Risk Assessment Tool: Banks and NBFCs can use this risk assessment tool to identify individuals most likely to experience payback issues and take proactive measures to reduce the non-performing assets (NPA). 

●    Making decisions: Helps determine eligibility, terms of the loan, and if more collateral or guarantees are needed.

●    Adjusting Interest Rates: Based on the historical frequency of settlements, banks might modify loan rates for new applicants, thereby controlling their exposure to risks.

3.    In the Credit System

●    Promotes Transparency: LSS in the CIBIL report easily differentiates between borrowers who timely repay loans and borrowers who settle the loan for a lower amount.

●    Supports Responsible Lending: Prohibits debtors with a settlement history from excessive usage of credit.
●    Reduces Systemic Risk: Transparency is guaranteed by accurate LSS account reporting, which also stops lenders from providing high-risk borrowers with excessive credit.

4.    Credit Bureaus / Reporting Agencies

●    Accuracy and Reliability: Credit bureaus like CIBIL can maintain the records of borrowers’ repayment behaviour with the help of LSS in the CIBIL report.

●    Data Integrity: Ensuring that resolved loans are appropriately classified helps keep the credit ecosystem accurate and reliable.  

●    Dispute Resolution: If borrowers feel that their LSS remarks in the CIBIL report are incorrect, they can easily raise a dispute and resolve it with the help of clearly mentioned information.

5.    Regulatory / Government Perspective

●    Compliance Monitoring: LSS reporting guarantees that lending institutions adhere to RBI/NBFC rules related to loan settlements and non-performing assets.

For example, if a borrower is paying ₹3.5 Lakh for a ₹5 Lakh loan, the lender must report this as a “settled” account instead of “closed”. This keeps the borrower's credit history transparent and guarantees adherence to RBI regulations.

●    Systemic Stability: With the help of correct and accurate LSS data, regulatory bodies can easily monitor financial stability and manage systemic risk in the credit market.

Read Also: What is a CIBIL Suit and How to Remove a Suit Filed in the CIBIL Report?

Impact of LSS on Credit Score

Your credit score and overall creditworthiness are significantly impacted when a loan account is listed in your CIBIL report as LSS (Lender Settled Status).

●    Drop in Credit Score: The LSS remark in your CIBIL report shows negative financial behaviour. Additionally, this remark can negatively impact your credit score based on the loan amount, outstanding balance, and repayment history.

●    Duration of Impact: After settlement, the LSS comment does not go away immediately. After the settlement date, it usually remains on your credit record for up to seven years.

●    Recovery Timeline: If the right approach is taken, borrowers can observe the credit score improvements within 3-6 months, while the full recovery takes 12–18 months. However, the time of recovery also depends on the severity of the issue and other financial habits of the borrower.

●    Long-Term Implications: Although your credit score may improve with time, some lenders may still ask for higher interest rates, collateral for a loan, or strict terms if they find your credit report and history of settlements in a loan account.  

Steps to Follow After Getting an LSS Remark

Your financial journey is not over if your CIBIL report has an LSS remark. You can eventually restore your credit profile and win back the trust of lenders by following the proper steps.

1.    Review Your CIBIL Report
It is essential to check if the LSS loan status is correctly mentioned in your CIBIL report. Check the details such as the settled amount, lending institution, and date. By confirming that the LSS record in your CIBIL report accurately reflects your case, you can maintain precise credit records. 
If the records are incorrect, you can immediately take corrective actions.

2.    Examine the Terms of your Settlement
Your agreement with your lender is closely linked to the LSS. Read the terms carefully. Was the agreed-upon amount accurately documented? Did the lender confirm the account termination? 

All written agreements and communications should be kept on file. If there is a discrepancy between what was agreed upon and what is displayed as LSS in CIBIL, this proof can be helpful.

Misunderstanding the CIBIL LSS meaning could lead to further complications, particularly when you believe the account is closed when it’s still indicated as unsettled.

3.    Maintain Timely Payments
By paying all your EMIs and credit payments on time, you can significantly reduce the impact of LSS on your credit score. 

You can’t completely erase the LSS remark in the CIBIL report; however, showing consistent responsible behaviour on your ongoing loans can help rebuild your score and improve your creditworthiness.

4.    Reduce Overall Debt
Excessive debt might worsen the LSS status of the CIBIL report. Prioritise paying off high-interest credit cards or lower-interest loans. From the viewpoint of potential lenders, a low debt-to-income ratio, ideally less than 30%, demonstrates your financial stability and reduces your perceived risk. 

5.    Be Patient
The LSS mark in your CIBIL report indicates that the account will be marked as “settled” for a maximum of seven years from the resolution date. Regrettably, this comment cannot be removed until that moment. Nonetheless, financial discipline, prompt payments, and a stable credit history can mitigate its effects. 

6.    Communicate With Your Lender
Stay in contact with your lender, especially if you find any mistakes in your LSS loan status or if it is disproportionately affecting your credit profile. In some cases (such as medical emergencies), lenders may be willing to update the status or provide a written clarification, which can help explain your financial conditions to future lenders.

You can ask the appropriate questions and demand fair treatment when you completely understand what LSS means in a credit report.

Read Also: Top Factors Affecting Credit Score Every Consumer Should Know

Conclusion

An LSS (Lender Settled Status) remark in your CIBIL report means that you have settled a loan by paying less than the full amount. This can negatively impact your credit score and future borrowing capacity. Even if it provides short-term relief, it's always preferable to practice prudent financial management while exploring settlement options to protect your credit profile.

FAQs

Is it possible to remove an LSS remark from my CIBIL report?
No, you cannot remove an LSS remark from a CIBIL report unless it has been misreported. If misreported, you can raise a dispute with CIBIL to get it rectified.

If I have an LSS remark, will lenders still accept my loan application?
Yes, however, as lenders consider settlements to be riskier, approval may come with more strict conditions, like higher interest rates, more collateral, or smaller loan amounts.

What can be the alternative to loan settlement (LSS)?
Other alternatives to loan settlements include loan restructuring, refinancing with another bank or NBFC, and EMI moratoriums. These will help protect your credit score.

Can LSS impact credit cards, or does it only affect loans?
LSS applies to loans as well as credit cards. Your credit card balance will also appear as "settled" in your CIBIL report if you pay off a portion of it rather than the entire amount owed.

What is the difference between LSS and loan default?
A loan default occurs when you stop repaying the loan, whereas LSS involves repaying only part of the outstanding loan amount after negotiating with the lender.