How to Improve CIBIL Score after Credit Card Settlement
Finally that phase of worry has gone where you have settled your credit card accounts and now you are all set to build the cibil score from scratch, but then you think, is it really possible to improve the cibil score after credit card settlement? Yes it is definitely possible to reclaim your financial stability!
But, at the same time you have to understand that it is not that “do it yourself solution” that you saw on Youtube on how to improve the cibil score in one go, instead an improvisation of CIBIL score will ask for three things : Commitment, patience & consistency.
Read this blog and learn some smart financial practices to diligently manage your credit and get your healthy CIBIL score back slowly and gradually.
Insider tip : Improving a credit score takes time, practice financial discipline & pay bills on time.
What is Credit Card Settlement & How does it work?
A credit card settlement means that you agreed with your card provider to pay off a lesser amount in comparison to the outstanding balance. Basically it is one technique that you can use when it is challenging to keep up with your credit card dues.
This situation takes place majorly for two reasons :
- A sudden emergency that requires ample financing for a long time.
- Not required and unnecessary spending.
No matter what the reason is, the main issue is that your credit card dues will multiply every month and cause major financial stress. In such circumstances, it's considered a settlement provided by both banks and debt settlement agencies.
How does it work?
Begin with the credit card settlement by following the below-given steps/rules :
Begin by explaining the whole situation to your bank on why you are not capable of paying off the entire credit card debt. You may speak with as many officials as you want before reaching a credit card bill settlement.
The next step will be that you have to write down a formal letter for settlement again in which you will explain in detail why you can't pay the entire credit card amount. The lender may decide on a final settlement amount based on the seriousness of your circumstances.
Then, as a result, provide the payoff of the whole amount that your lender has decided and settle the credit card account.
How Credit Card Settlement Affects Your CIBIL Score?
A negative mark on credit history: Credit card settlement can have a severe impact on your credit report. The account after settlement of the credit card may be marked as “settled” showing to future lenders that you didn’t pay the full amount taken or granted.
Lower credit score: A settled account on your credit report will lower your credit score directly. This can make it more challenging to qualify for credit card applications or other forms of credit in the future.
Creditworthiness in future: This is the tendency for lenders to view individuals with a history of settled accounts as higher-risk borrowers, potentially resulting in higher interest rates or lower credit limits on future credit cards.
How to improve your CIBIL score post credit card bill settlement?
As it is proven that a high CIBIL score is what makes you likable and eligible to get credit cards in the future, it is very important to have a healthy credit score so don’t lose heart if you do not have one good CIBIL score.
We know the ways with which you can again improve your CIBIL score.
- Change the status of account from settled to closed
One of the convenient ways to improve your CIBIL score is to change the “settled” status to “Closed" with your credit card company. The only thing you have to do is to pay off all the dues in one- go.
‘Settled’ status will always leave a negative impact on your credit history, as it indicates that the individual hasn’t cleared his/her dues completely in the past.
If you feel that your dues are very high and it’s next to impossible for you to pay them all in at once then we try to discuss them with your bank or credit card company. Try to negotiate over an amount that is within your paying capability and equally acceptable by your bank or credit card company.
- Keep 70% balance available on your credit card
Your credit card's available balance also plays an important role in deciding your CIBIL score. The available balance will show that how much you rely on credit cards, the best practice you can do is to only use 30% of your maximum card limit in your credit card account. Individuals who exhaust their maximum card limit will harm their CIBIL score.
- Try to pay all your bills regularly
Your payment history is another crucial factor in deciding the status of your CIBIL score. The best way to improve your CIBIL score is to make full payment of all your dues and balances on time since the start. Those who do it have a boosted CIBIL score in comparison to a cardholder who delays his payments.
- Apply for the credit card against fixed deposit account
A low CIBIL score needs certain ways to get fixed and one viable way to achieve this is to apply for a credit card against any fixed deposit account.
To do this, you need not have a huge amount saved in your fixed amount. You can start with Rs. 20,000 - 25,000 as well. The bank will issue a credit card with a maximum limit of 75%- 90% of the amount in the fixed deposit and use this card regularly and spend only 30 % of the card limit.
- Clear any remaining outstanding balances
If you have outstanding balances against any of your credit cards, it will directly impact your CIBIL score. The more you take time to pay off your dues, the worse your CIBIL score will become. Creating an unnecessary delay in clearing your outstanding will do nothing except damage your own CIBIL score.
Perk : Celebrate small victories along the way to stay motivated as you clear outstanding balances and responsibilities.
- Make the most out of your credit card
It is observed that credit card holders spend a lot with their credit cards without thinking about their later impact, Most cardholders don’t even know how to use their credit cards in the right way which leads to a negative CIBIL score. One of the best ways to use the credit card is to consume only 30% of the total credit card limit every one month.
- Choose to have good credit habits
Good credit habits will stay with you for the long run and they will serve many benefits, if you want to have a healthy CIBIL score then you have to be an active follower of good credit practices for years and only then your creditor will gain trust over you.
Not using multiple credit cards during your re-building period, avoiding unnecessary expenses, and timely payments are some of the good credit habits that one should always practice to improve their CIBIL score post-settlement.
Advantages of Improved and high CIBIL Scores
- Quick chances of approval:
A high credit score is linked with responsible credit behavior and a lower risk of default for the lender which definitely increases your chances of being approved for a loan or a credit card.
- Lesser rates of interest:
A good credit score will always help you avail credit like a personal loan, home loan, or credit card on comparatively lower rates of interest from the lender.
- Quick access to pre-approved loans:
A high credit score will directly increase your chances of accessing pre-approved loans and credit card offers on a priority basis. These offers can give you easy and quick access to credit as they usually ask for the minimal documentation and shorter approval times.
Conclusion
Consider your credit score as a journey rather than a quick outcome. Embrace the process of rebuilding by fostering responsible credit habits and financial discipline reflect on the experience to develop a deeper understanding of managing credit wisely in the future.
Not to forget : Your credit score is not just a number but a reflection of your commitment to financial well-being.
FAQ’s :
- How can I remove my credit card settlement from CIBIL?
Remove the settlement flag from the credit report by getting it closed by way of paying waived or discounted amounts to the Bank.
Is a settled account good or bad?
A credit card settlement can be an attractive option to eliminate debt, but at the same time, it will create a negative impact on your credit report.
- What happens after credit card settlement?
Once you make the agreed-upon amount's payment, your debt will be considered paid off and the credit card company will settle your account in the records.
- Can I use the same credit card after settlement?
No, If you have settled with the same bank in terms like you are not able to pay the full amount and instead paid some amount from the total amount and the bank agreed to settle this, in that case, you would not be able to use the credit card of that same bank again.
- How much credit score is affected when you close a credit card?
Your CIBIL score is the average of all your accounts. So closing down the one that's been open for a long period of time could lower your score the most and closing a new account will have less of an impact.
