How to Improve CIBIL Score after Personal Loan Settlement

Your healthy credit history is in your hands no matter what the condition states or perceives. Be it a medical emergency or any financial crisis that has taken place in your life all of a sudden, you are still responsible for your credit history and to do that you have to be financially responsible and consistent with all your credit card bills, EMIs, and dues all along. This is the only way with which you will be able to survive with the best and healthy CIBIL score throughout while enjoying all the benefits of a good credit score.

Now let us see the other side of the situation where you're struggling to pay out your loans and the only option that is left with you is to choose an option of loan settlement. Loan settlement means a direct impact on your entire credit history and your CREDIT score as a whole.

However, as you have chosen a pathway of personal loan settlement and have cleared the debt by following all the rules, the next step of concern will be how to improve the CIBIL score after the settlement of the loan, so let us get into this blog to know all the tactics.

Master MOVE : Practice wise financial habits, such as budgeting, avoiding excessive debts, and saving.

What is Personal Loan Settlement?

A personal loan settlement refers to an arrangement made between a borrower and a lender to resolve the outstanding debt on a personal loan by paying an amount lower than the originally agreed-upon amount. In this situation, the borrower negotiates with the lender to settle the debt by paying a lump sum amount that is less than the total outstanding balance.

Once the settlement amount is paid, the lender considers the debt as settled in the records.

What are the Benefits of Personal Loan Settlement?

• Reduced debt burden:

  Settling a personal loan means you're paying off the debt in a decided amount from your and your lender's side or negotiating a lower amount than what was originally owed. This can directly reduce the immediate financial burden and stress associated with all those ongoing repayments.

• Improved flow of cash:

  By settling the personal loan, you free up your income for other expenses or investments. This improved cash flow can be redirected toward savings, investments, or emergency funds so that you do not have to face the same situation again in future.

• Avoiding legal actions:

  A defaulted loan when not settled or paid leads to legal actions or debt collection procedures like multiple calls and messages that might also disturb your mental peace and when the loan is settled you can prevent these actions and avoid potential legal troubles.

What is the Process of Personal Loan Settlement?

The loan settlement process involves several steps that need to be followed to achieve an agreement with the lender regarding the repayment of a personal loan.

• Studies your financial situation

  Understand your financial situation and decide whether you're ready to repay the loan. Analyze your financial capacity by studying your income, expenses and existing debts.

• Connect with your lender

  Connect with your lender and make him/her understand about your financial position and after that discussion, you can produce proof of your poor financial situation, the lender may be willing to negotiate terms of the settlement.

• Negotiate the terms of the settlement

  Discuss all the things that are associated with the settlement with your lender. This discussion includes addressing the settlement amount, repayment choices, and penalty.

• Agreement

  Once both borrower and lender have agreed on the settlement conditions, make sure that everything is in writing. This contains the settlement amount, payback timeline, and any loan terms or changes.

• Pay the settlement amount

  Make the agreed-upon payment to stand by on your settlement agreement. This could be in the form of a flat decided payment you must pay back on or before the agreed-upon deadline.

• Observe your credit report

  Check your credit score regularly to confirm that the settled loan is correctly reported. If there are any discrepancies, contact the credit bureaus to have the information corrected.

How Personal Loan Settlement Affects CIBIL Score?

As per the research and the records, the effect of personal loan settlement on their CIBIL score ruins the chances of getting loans at competitive interest rates. The majority of borrowers are unaware of the guaranteed harm that a loan settlement could do to their credit score.

If you've settled your debt, you should take into account the future negative effects on your CIBIL score. It's not unusual for your credit score to suffer if you have a "settled debt."

The status of a settled debt stays on the credit report for as long as 7 years. During these 7 years, whenever you apply for a new loan, credit card, or any other form of debt, the lender will consider the “loan settlement” status to make their decision.

How to Improve CIBIL Score after Personal Loan Settlement?

• Check your credit report on a regular basis

  This is a very important but neglected step. To maintain a good credit score you must regularly check your report, reviewing it carefully and ensuring there are no errors can get you ahead in the long run.

• Pay bills and dues on time

  This is one of the most crucial steps in improving your credit score. Try to pay and maintain all your bills on time.

  Clearing all dues, credit card bills, and other outstanding EMIs within deadlines should be the top most priority.

• Keep your credit ratio low

  You must try to keep this ratio below 50% and try to use only 30% of your credit limit as a frequently high credit utilization might indicate financial instability and can negatively impact your credit score. You must borrow responsibly and use credit cards mindfully.

• Practice consistency and patience

  To maintain and improve the credit score one needs to be consistent, patient, and very much strict with their financial habits. It takes time and a flow of strategies. A debt settlement that comes with relief also asks for constant efforts and time at the time of building or improving the CIBIL score, which in reality is a task in itself.

  Also read: How to Improve CIBIL Score after Education Loan Settlement.

Conclusion

Improving your CIBIL score after settling a personal loan is like building a strong foundation for your financial future. Start by making sure you pay all your bills and EMIs on time, showing that you can handle money responsibly, and try not to use too much of your available credit, keep it low.

FAQ’s

1. How much time will it take to increase CIBIL score?

   It takes minimum four months and maximum 12 months to increase the CIBIL score as per your repayment history.

2. Will CIBIL score increase after loan closure?

   Yes, there is an increase in the CIBIL score after closing a loan if you pay all your EMIs, dues and bills on time.

3. Is a settlement better than not paying?

   No, it is not! You should only consider loan settlement if you are unable to make your monthly payments and are at risk of defaulting on the loan.

4. What is the impact of personal loan settlement?

   It negatively affects your credit report and credit score, which in turn can make it difficult for you to secure credit in future.

5. How to calculate personal loan settlement? DOUBT.

6. What is the minimum percentage for a loan settlement? DOUBT.