December 3, 2024 · 15 mins read
Santosh Kumar
CIBIL is a credit rating agency that displays the creditworthiness of individuals and businesses when they apply for credit. A healthy CIBIL report will result in instant loan approval, whereas a poor credit rating may lead to the rejection of your application.
It is important to remember here that CIBIL contains several metrics to judge an individual's or corporation's creditworthiness. A common term present in the CIBIL report is 'loan settlement'. If this term is present in your CIBIL report, it negatively affects your CIBIL score.
So what does loan settlement mean, and how to remove settled status from CIBIL? Read on to learn how to remove settlement from CIBIL.
There could be instances when you need money on an emergency basis. Unexpected expenses may arrive at a time, and borrowing money may become necessary. So, you apply for a personal loan from a bank or a financial institution on the condition of monthly EMI repayment over some time. But what if your situation changes, and you suddenly need help to repay the loan back.
If you have failed to pay the EMI for 6 months for genuine reasons, you can approach the bank, offering you a one-time settlement. Situations such as loss of employment, accident, or a severe medical condition may be considered for a one-time settlement. The bank authorities will hold a discussion with you to understand your situation. After considering your unforeseen circumstances, they will decide on the amount of settlement that you must pay to clear your loan. Once paid, the bank will write off your loan account as 'settled'.
Remember that loan settlement is not the same as a loan closure. Loan closure is when you pay all monthly EMIs on time until the principal amount and interest are fully repaid. In this situation, your loan account will be marked as closed. A loan closure will not have any adverse impact on your CIBIL score. On the contrary, on-time and full repayment of loans will significantly improve your creditworthiness and credit-taking capacity.
But, in case of a loan settlement, your CIBIL score will plunge by 75-100 points.
When a financial institution writes off a loan report as 'settled,' it informs CIBIL and other credit rating agencies. While the transaction between the borrower and lender is closed, a loan settlement will have a negative effect on CIBIL. Settling signifies negative credit behaviour; thus, other lenders will be deterred from approving your loan application upon seeing the words 'settled'.
CIBIL records all credit details of an individual for at least 7 years, though it may be more. If you have a loan settled in the past and apply for a new one in this period, you may not be eligible for one. The lender will not consider you qualified for a loan and doubt your repayment capacity. Thus, any record of non-payment will end in rejecting your current loan application.
Read More:: Is 776 a Good CIBIL Score?
Considering the impacts that a loan settlement has on your CIBIL score, it is mandatorily important to remove the “settled status” of it. This is because, all of the information are documented with your profile and when you want to apply for a loan or anything related to the credit card usage also, your CIBIL score will be the primary evidence that will be looked into for your credit worthiness. If in case, you are having a lower CIBIL score, then there are high chances that your request for a loan will be rejected no matter how genuine your reasons were for the loan settlement. Therefore, it is always advisable to remove the settled status through a proper and valid process and have the removed documents handy. This will help you in getting your loan approval despite the settled status marked in your profile or account.
Though you had genuine reasons that might include sudden unforeseen situations, the mark as settled loan needs to be cleared out in order to secure your good credit score. The reasons might be unemployment or unpredicted medical conditions or even some existing debts that you can’t handle or a financial crisis but the lender or the bank will not consider those excuses when it comes to paying the loans on time. Yes, it is not purposely failed to make the payments on time but that is not how the loans and the CIBIL score works. It values timely settlements of payment since their money was given to you. In such cases, you can make a clear statement and have a conversation explaining the reason why it was delayed and not paid on time. If the lender is willing to accept your excuse, then it is good for you that your settled status will be changed into closed. If not, you are in trouble with your CIBIL score and you have to make it right by explaining and requesting the lender to accept your delay and reverse the settled status.
In general, for lending money or a loan, everyone needs some kind of proof or validation to trust you and give their money with hope. One such dominating factor is what your CIBIL score is and when there is a negative mark noted like loan settlement, it really affects your credibility and you must be really worried and take immediate actions to remove the settled status or do all the possible work to rectify that.
Now, let us get to know what are the eligibility criteria for one to remove their “settled” status with their loan. The sooner one removes the settled status, the better are the opportunities to maintain the good CIBIL score. Hence, in order to remove the settled status, you need to clear and pay all the outstanding dues with the money lender as soon as possible. It is also required for you to obtain the “No due certificate” from your money lender. A no due certificate is a kind of document that will confirm that you have cleared paying all the amount that had to be paid and there is nothing more that needs to be paid with the loan. It will simply state that the loan has been paid entirely.
A no due certificate will contain the following details:
The borrower’s name and contact information - Here, the details such as full name and contact details of the person who obtained the loan will be added
Loan details - In this section, the details of the loan type and for which loan account the loan was approved. It also includes the details of the bank or the financial institution that issued the loan
Date of repayment – This detail will confirm when was the repayment was done and the completion certification issued date
Confirmation of repayment – This will clearly state the confirmation of the full repayment of the existing dues that the individual had and also the date of loan closure will be added for reference. It confirms that there is no outstanding dues with the loan and repayment has been successfully processed
These are the basic details that will be included in a no due certificate issued after your repayment of outstanding dues. Or else, you can get any other proof of your complete repayment for your dues that confirms that you don’t have any more outstanding dues with them. If you have done these, then you are eligible to request the removal of your settled status and get it updated as closed.
The process of “settled” status removal will be handled by the CIBIL team. They are supposed to update the status of your loan as either closed or paid on your CIBIL report. In that event, once you have paid all the dues, you can submit the no due certificate (NOC) to the CIBIL via visiting their official website and dispute the settled status. After that, CIBIL will verify that with your lender and will update it as needed. You have to check the CIBIL website frequently to see if your settle status is being updated or not. Usually, it will be updated within 30 to 40 days.
If your loan settlement is not getting updated after submitting the necessary documents and you have also waited for 30 – 40 days for the change to reflect but it is not yet updated, then you need to file a grievance with CIBIL. You also need to contact both the money lender and CIBIL team to check the reason why it is not updated. You can also submit any other additional supporting documents if you have to reconsider your settled status removal and get it approved. You can also try to dispute with the incorrect status of your CIBIL report and loan closure statement will also act as a proof along with the no due certificate to update your settled status correctly as closed.
Now that you know what a write-off is in a CIBIL report, you must know how to avoid one. A loan settlement negatively impacts your creditworthiness and CIBIL score, and you should take steps to avoid such a situation altogether by following the steps below:
Unexpected expenses can easily drain your credit. Thus, before applying for a loan, create a budget that considers your repayment ability and factors in unforeseen financial issues.
Before you apply for any loan, make sure you research well and assess your loan repayment capability. Your monthly EMI installments should be easily affordable based on your income.
Utilise your research period well. Identify the different kinds of loans that fulfill your financial goals and apply for the one that best fits your goals. It is always recommended that you choose a loan with the lowest rate of interest and longer repayment duration.
Sometimes, the lender may have hidden terms or charges relating to your loan application. Before you sign the document, carefully review the loan agreement to identify any hidden clauses that may affect your ability to repay the loan.
If you think you are at risk of loan default, please contact the bank or financial institution that disbursed the loan. Explain your situation and convince them to reach a mutually favourable solution that considers your situation.
Read More:: What is CMR Rating in CIBIL?
If you have written off mentioned in your CIBIL report, you should take some immediate steps. Check your CIBIL reports continuously for any errors. Many times, incorrect or inaccurate information may be the reason behind a write-off. There may also be instances where your past closed accounts may be marked as a write-off.
But if there are no errors in your CIBIL report, you must follow the steps below immediately:
1. Reach out to your lender to ascertain the amount you owe
2. Negotiate a repayment plan with your lender to repay the outstanding amount
3. Once your loan is fully cleared, it is advisable to seek an official document. This document will be proof that the loan is fully settled. Obtaining a 'no dues' certificate from the lender is essential because CIBIL cannot alter your written-off status on its own. It needs official proof from the lender.
If you have cleared your dues and still find a 'written-off' statement in your report, follow the steps below:
1. Contact CIBIL directly to raise a dispute if the lender has not uploaded the information duly
2. To substantiate your case, provide CIBIL with a copy of your official document stating that the loan is fully repaid
3. Follow-up with CIBIL regularly to ensure the 'written-off' status in your CIBIL report is removed
If you have a written-off status in your CIBIL report, your chances of loan approval will significantly decrease. A written-off statement will deter potential lenders from approving your loan request.
Apart from decreasing your chances of a loan approval, a write-off may result in higher interest rates. Even if your loan is approved, the lender may charge a higher rate of interest. This is because your past default makes you a high-risk borrower.
Read More:: Reasons For Loan Rejection Despite Good CIBIL Score
Various factors, other than a write-off status, can negatively impact your creditworthiness. Rebuilding your CIBIL score is a tedious process that requires long-term financial prudence.
CIBIL gathers information from various lenders to assign a credit score, which lenders can access during a credit application. The score is accompanied by a credit report that details various parameters based on which the applicant received the score.
These parameters include:
1. Repayment history
2. Outstanding dues
3. Number of loans availed
4. Duration of credit history
5. Credit mix (secured & unsecured loans)
6. Credit utilisation ratio
Each of these factors impacts your CIBIL score differently. While securing a loan with a write-off statement may be difficult, you still have chances of getting a small loan within your budget and rebuilding your credit score.
If CIBIL does not remove the write-off statement, banks and lenders will be hesitant to grant your loan request. Thus, paying off your dues and keeping your CIBIL score high is essential.
Read More:: Benefits of Good Cibil Score
A written-off status on your CIBIL report can occur if you defaulted on previous loans due to compelling reasons. Once you negotiate a repayment plan with the lender and the outstanding dues, the lender will mark your loan status as 'written-off'. A 'written-off' status will lower your creditworthiness and cause future loan applications to be rejected. Knowing how to prevent a written-off status and how to remove one will significantly improve your chances of obtaining a future loan.
In this regard, proactiveness is key. Follow the steps mentioned above and remove the 'written-off' status from your CIBIL report for successful loan applications.
Can I resolve my 'written-off' status directly with CIBIL?
To remove a written-off status, you must first raise the issue with the lender and obtain the necessary documents. Without conclusive proof, CIBIL will not change your written-off status.
How long will removing a written-off status from my CIBIL report take?
Removing a 'written-off' status is a time-consuming process. If your lender is responsive and updates changes, it may take a few weeks. If not, it may take several months to resolve. Also, some issues may be more complex than others, further delaying any possible resolution.
Will a written-off status make me ineligible for a credit card?
Yes. Just like a loan request, a credit card application can decrease your chances of obtaining a credit card. Lenders are wary of any default and will minutely analyse your credit history before approving any loan.
How long will a written-off statement remain on my CIBIL report?
No. A written-off status remains on your CIBIL report for around 7 years from the date of default. But, if you clear your other dues on time and are able to resolve the issue with your lender, your CIBIL score will considerably rise in a short period.
Does Cibil maintain a defaulters list?
No. CIBIL only provides a rank and a report of your credit history and does not maintain a defaulters list. It gathers information from lenders and updates the individual's report and score according to their credit behavior to show their creditworthiness.
What will happen when I repay my loan in its entirety?
Once you repay your loan fully, your CIBIL score will considerably improve. Loan closure or the complete repayment of EMIs on time will improve your CIBIL score considerably. If you have a write-off status and repay your loan entirely, your creditworthiness will improve.
Can I improve my CIBIL score after a loan settlement?
Yes. You can improve your CIBIL score after a loan settlement. Although it takes time, you can rebuild your CIBIL score by paying your existing dues on time. This includes credit card and loan accounts. Over time, you will see a rise in your creditworthiness.
What is the minimum CIBIL score required for a loan approval?
A CIBIL score of 750 or more is considered excellent and will result in immediate loan or credit card approval. A score of 650-749 is good but may fetch higher interest rates. From 550-649, you can take steps to improve your CIBIL score with prudent financial planning. Anything below 549 is considered poor and will result in rejection.
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