How To Improve CIBIL Score After Settlement

What is Loan Settlement?

A loan settlement is often misunderstood as a loan closure. However, the former refers to the procedure of resolving an outstanding loan by having an agreement between the lender and borrower, whereas, the latter simply means repaying the outstanding amount and closing the loan on time. In the event of emergencies or job loss, in any situation that puts the borrower in a spot where they have difficulties clearing the loan on time, they can opt for loan settlement. Loan settlement is a process where a borrower can negotiate with the lender to get some time off from paying EMIs and they can pay a mutually decided settled value in a lump sum later. The status of this loan is recorded as settled in the records. And CIBIL makes a record of this for future reference. Loan settlement is considered as a negative event and it can have an undesirable effect on your credit score. 

How does Loan Settlement Affect the CIBIL Score?

Opting for a loan settlement can relieve borrowers of their immediate financial burdens but this can hurt their credit score and even hurt their chances of securing a loan in the future or even credit card applications. On settling a loan, the borrower pays the lender after a break, in a lump sum to close the outstanding debt. This is considered a negative move as it indicates that the borrower was unable to handle credit responsibly. And since the credit score plays a crucial role in indicating good financial health, a lower score can hurt the individual’s future loan or credit card application prospects. However, it's essential to note that this impact is temporary, as CIBIL generally keeps records for 7 years and there are ways to restore creditworthiness. 
Read on to know more if you are wondering how to increase your CIBIL score from 600 to 750! By following the steps given below you can take control of your CIBIL score and financial future.

Also Read :- How to Improve Credit Score in India After Default?

How to Improve the CIBIL Score After Settlement?

You can follow these 8 simple steps to ensure you restore a good credit score post the loan settlement. 

Check Your CIBIL Report Regularly

This is a basic yet often overlooked step. To maintain a good credit score you must regularly check your report from the Credit Information Bureau of India Limited (CIBIL). Reviewing it carefully and ensuring there are no errors or discrepancies can get you ahead in the game. If any inaccuracies, like an incorrectly reported settled account or late payments that were not made, are found, you must contact CIBIL to have these corrected. Overlooking this can negatively impact your score. 

Clear Bills and Dues On Time

This is one of the most important steps to improving your credit score. You must consistently pay all your bills on time. Clearing all dues, credit card bills, and other outstanding EMIs or debts within deadlines must be on priority. This exhibits your credit handling reliability and financial responsibility, positively impacting your credit score. 

Maintain A Low Credit Utilization Ratio

Credit utilization is the ratio of the credit that you are currently using and the total available credit. You must try to keep this ratio below 50%. Constant high credit utilization might indicate financial instability and can negatively impact your credit score. You must borrow responsibly and use credit cards mindfully. 

Establish A Mix Of Credit

Having a varied mix of credit can positively impact your CIBIL score. Having only one type of credit account can hamper the perception of your financial health. You must always try to diversify your credit usage by obtaining Personal Loan, credit cards or auto loans instead of just going heavy on one. Having said that, it is necessary to borrow what you can comfortably repay.

Keep A Tab On Credit Applications

An inquiry is triggered each time you apply for a new credit card or loan. You must avoid making multiple credit applications within a short period. It may give the impression that one is unable to manage credit and finances. 

Maintain A Healthy And Long Credit History

The length of your credit history is also a factor in calculating your credit score. Hence maintaining your credit accounts over a longer time is recommended. 

Maintain A Decent Debt-To-Income Ratio

The debt-to-income ratio is essentially the percentage of your monthly income that goes toward paying EMIs and credit card bills. A financier usually considers this ratio when assessing creditworthiness. As a thumb rule (though not a written rule), you must try and keep your debt-to-income ratio below 40% to showcase your ability to manage your credit effectively. 

Give Time And Be Consistent

Improving and maintaining a good credit score isn’t something one can achieve overnight. It takes time and strategizing. It is necessary to be persistent in your efforts and remain committed to inculcating good financial habits. 

Conclusion:

Restoring and improving your CIBIL score after the settlement of a loan is not an overnight process, but it is possible with discipline and consistency. By following the above-mentioned 8 steps and adopting responsible financial habits, you can enhance your creditworthiness and increase your CIBIL score from 600 to 750 or even higher. We at Poonawalla Fincorp understand the importance of having a good credit score and can help you check your CIBIL score effortlessly. By assisting you to take control of your credit score and with our multiple loan offerings we can help pave the way for a brighter financial future! With a loan for every purpose, we can help enable your dreams!