Loan Settlement results in low CIBIL Score and New Loan application rejection


Settling your loan / credit card with bankers results in low CIBIL Score. Don’t go for settlement of your personal loan or credit card due or Home loan. In fact, pay the full amount and clear the full amount.

Here is the true story of my Friend, who just got his new credit card.

Kapil (name changed) was very happy. He did shopping for Rs 1,00,000/- with his new credit card. He got new LED TV, new washing machine and new clothes. But when he got the credit card bill he was not in position to pay the full amount. So he decided to pay minimum amount due.

But within few months, amount due on credit card was around 1.5 lacs. His credit card limit was exhausted. He decided to throw the card.

Banker started him to chase for credit card recovery. He then decided to settle for just 10% of the total amount due.

Kapil was very happy, he just paid Rs 15000 against total due amount of Rs 1.5 lacs. He got  settlement letter from the bank also.

A year later, he made a booking with a builder in Noida by paying just 10%  as booking amount. When he applied for home loan , he got shock of his life. His loan application was rejected. Reason: CIBIL record showed that there was loan settlement in year 2011. His CIBIL score was less than 600.

He was in fix. there was no way he could pay the remaining installment from his own sources. He asked builder to refund the booking amount. Builder told that they will deduct 10% of total value of property. In his case this was actually the full booking amount he had paid.

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Settlement of loan is not Advisable

On settlement of loan, your CIBIL record shows that your loan was settled. Most of us think that once we settled our loan with banker we are free. Yes, you are free from the collection and follow up calls that you were getting from bank.

Impact of loan settlement on CIBIL Records

  • Loan Settlement is very negative for your credit record.
  • This results in low CIBIL score.
  • It implies that no bank will give new loan or credit card till “Loan Settled” word is not removed

How to get your CIBIL Record updated to show “No Due/ clear account” / How To improve your CIBIL score

  1. Payment before time: Pay your loan and credit card bill on or before time.
  2. Full Payment : Always pay full loan installment . In case of credit card, always pay full amount due on your credit card statement.
  3. Shopping within your budget:  Always do shopping as per your paying capacity.
  4. Clear your dues: In case you have defaulted in credit card payment / or loan repayment, make sure that you full amount due as soon as possible.

How much score is ideal CIBIL Score?

CIBIL score of more than 750 is good score. Some banks however consider more than 850+  as good score.

Conculsion: Talk to your bank and clear your loan due amount in full. Always pay your dues on time and over a period of 1-2 years your CIBIL score will increase.

Enjoy happy loan free life. Share your loan settlement stories with us.