How to Improve CIBIL Score after Loan/Debt Settlement | Credit Help India

How to Improve CIBIL Score after Loan/Debt Settlement

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How to Improve CIBIL Score after Loan/Debt Settlement

Wednesday, February 7, 2024
Table of content
2.What is CIBIL score?
3.What is Loan/Debt Settlement & how does it work?
4.What are the Key Aspects of the Loan/Debt Settlement?
5.What are Alternatives to Loan/Debt Settlement?
6.How Loan/Debt Settlement Affects Cibil Score?
7.How to Improve Cibil Score after settlement?



Who does not aim to have a high CIBIL score? We all do, right? That is because it strongly presents our credibility and that is the only way with which a good or bad financial stand can be proved, no matter if you are applying for a loan or a credit card, a healthy credit score is all it takes.

Now the problem is that you have settled a loan in the past and it is showing in your credit report and chances are that “settled loan” might raise a question of worry in future!

But there is no need to stress as you can improve your cibil score easily after loan/debt settlement. Read this blog to know more about how you can improve your credit score after the settlement of a loan.

What is CIBIL score?

CIBIL score, also termed as credit score, is a three-digit numeric summary of an individual's credit history.

The credit rating bureaus maintains and calculates the credit score. Simply, the cibil score gives a direct answer into how well you have managed your finances when it comes to home loans, personal loans, or credit cards, in the past.

What is Loan/Debt Settlement & how does it work?

Loan settlement is a term that is often mistaken for ‘loan closure’, but that is not true. Both of them are very much different from each other.

Loan settlement : Loan settlement is a process in which the lender and borrower come to a mutual agreement on the amount that must be paid if the borrower is unable to repay the loan in the full amount taken. In loan settlement, the final amount will always be lower than the outstanding/borrowed amount.

TAKE A NOTE: A loan settlement will always drop your credit score.

Loan closure: If you pay off all your monthly installments on time and complete repayments as scheduled, the lender will close the loan account. The same information will be reported to credit rating bureaus and it will create a positive impact on your credit score.

How does it work?

Once the borrower gets approval from the lender on the non repayment of the loan, a common understanding to pay a one-time amount of the loan is initiated! After that a borrower needs to pay the decided amount to the lender to settle the loan account entirely. Then the information of this ‘settled’ loan account is shared with the credit bureaus for their record-keeping.

Point to be considered: There is no policy regarding the loan settlement criteria and on the calculation method of the loan settlement amount.

What are the Key Aspects of the Loan/Debt Settlement?

  • When you opt for debt or loan settlement, one thing that is guaranteed is that you will damage your credit score.
  • The process of debt settlement is not as quick as you think as it will take a lot of time. Loan settlement and loan closure are two different things don't consider them the same.
  • Loan settlement/debt settlement on loan will stay recorded forever on your credit report till the settled loan account is closed by way of paying full amount.

What are Alternatives to Loan/Debt Settlement?

It is recommended that you always look out for the options before going for the loan settlement as loan settlement will create one of the most crucial impacts on your credit report.

The list of the best alternatives that can be considered is as follows;

  • Utilize your savings ( Fixed deposits if any)
  • Wind up your investments or any of the assets bought to pay out the loan!
  • Get in touch with financial counseling or debt consolidation services for proper and managed debt management techniques.
  • Use all your emergency funds

Before proceeding with the loan settlement, it's very important to understand other aspects as well. As loan settlement negatively impacts your creditworthiness.

How Loan/Debt Settlement Affects Cibil Score?

A one-time settlement of a loan between the lender and the borrower is termed to be known as OTS in banking language.

If you take a one-time settlement it conveys that the borrower has accepted that he/she is incapable of paying the loan in full amount, then after this information will be shared with credit bureaus by the lender and the loan account is shown as “settled” instead of “closed” in your credit report which can directly lower your credit score by creating a negative impact on your financial history.

The term “settled” in your credit history will indicate that you are a risky borrower and cannot be trusted with any financial commitments in the future.

How to Improve Cibil Score after settlement?

There are several ways using which you can improve your cibil score after loan settlement.

A good credit history is important

When you are done setting the loan, make sure you pay all of your credit bills and EMIs on time.

Paying your monthly installments on time quickly improves your credit score, because the very first thing that will be noted when you apply for the loan is your credit report. So make sure you create positive history while fading the negative history mentioned in the report.

Account status from settled to closed

One of the most important things to do is to change the status of the account from 'Settled' to 'Closed' with your loan provided by the bank or company. The easiest way to enhance your CIBIL score is to make that thing possible. You have to pay off all of your outstanding .

Pay all your dues regularly

Clear all the dues if any after your loan settlement as early as possible.

Making all of your loan/credit card payments on time and in full amount, starting right after the loan settlement is one technique to restore your credit score.

Keep no any outstanding dues

Unpaid dues are another way of creating a negative mark on your credit history, at first it gets tough to clear out all the dues in one go but yes you can at least try.

The longer you will take to clear the dues the higher the interest it will create, and at the same time, your credit score continues to decline as you delay payment.

Use a secured card

You can improve your credit score after credit card settlement as that will give you a great push in building a good trustworthy credit score.

You should be able to use credit even if you have a settled loan.

Maintain Available Credit Limit Above 50%

The available credit on your credit accounts is another aspect that impacts your credit score. Do not utilize more than half of the credit limit you've been given.

For example, if your credit card has a limit of Rs. 40,000, don't spend more than Rs. 20,000 per month on it.

Do not apply for loans

Avoid applying for any type of loan for a few months after the settlement of the loan as it will show that you are a credit-hungry individual.

Do not stop using the credit cards

Do not forget to repair or improve your credit history. You need to have a history first, so in that context do not stop using credit cards instead use them to build a good credit score.

Be very smart in using the credit card

Mostly all credit card users spend a lot of money on their cards without considering the long-term concerns that come with its usage. The majority of cardholders don't know how to properly utilize their credit cards, which results in a low CIBIL score.

The best approach to utilize a credit card is to only use 40% of the total credit card limit per month. With this spending pattern, you'll be able to maintain proper payouts and avoid any pending payments.


In conclusion, improving your CIBIL score after loan settlement requires a complex approach starting from responsible financial behaviors, consistent payments, and careful management of credit utilization.

Be patient and consistent in implementing these strategies, as a slow improvement in your credit score will contribute positively to your overall financial health.


  1. Can a settled account be removed from the credit report?

    Yes, it is possible to remove settled accounts from credit reports. However, the main technique to do that is to pay off all outstanding balance amounts pending on your previous lender.

  2. Is it true that after 7 years your credit is clear in India?

    As per the credit reporting guidelines in India, negative information, such as late payments or settled accounts, generally remains on a credit report for 7 years from the date of the first default. After this period, the negative information is supposed to be removed from the credit report.

  3. Can I get a loan after settlement?

    Yes, you may still be able to get a post-settlement loan even if you have bad credit in the past but with more strict requirements and higher interest rates.

  4. Is it a good idea to settle debt?

    No it is not, rather it is always recommended that before opting for debt settlement, consider exploring alternative options.

  5. Is it better to settle or pay in full?

    Commonly, it's always good to pay your debt as much as possible to come up with a debt-free life.

  6. Does early closure of loan affect CIBIL Score?

    No, it will not! A repayment will give a direct and positive push to your credit score, and closures of loans will never hurt your credit score.

  7. What is the best way to settle a loan?

    Settling a loan involves negotiating with the lender to pay off the debt for a lesser amount than what is owed.

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