How to Improve CIBIL Score After Loan Settlement 

What is Loan Settlement 

Loan settlement is the process of settling an outstanding loan by having an agreement between the lender and the borrower. It is sometimes referred to as debt negotiation, debt relief, or debt resolution. A loan settlement is essentially an agreement between you and your lender to repay your debt for a sum that is lower than what you owe. A number of factors, including business losses, incapacity, job losses, or financial troubles, may cause borrowers to be unable to make their monthly payments. You have the option to settle your loan in the event that any of these circumstances arise. But not every borrower qualifies for this lump sum loan settlement. Only debtors with valid proof of their incapacity to repay the loan.

What is CIBIL Score and Why is it Important?

A three-digit score called your CIBIL score indicates your likelihood of making timely loan repayments. It’s computed using information from your credit history, including payment patterns, credit use, and credit history length. Because it can help you get authorized for loans and credit cards at reduced interest rates, having a high CIBIL score is crucial. Additionally, it may make it easier for you to be approved for other financial goods like housing and insurance.

To put it another way, your CIBIL score represents an indicator of your level of borrower reliability. If you have a high CIBIL score, lenders are more likely to approve you for loans and credit cards with reduced interest rates because you have an excellent track record of repaying your bills on time. If you are authorized for a loan or credit card, you might have to pay higher interest rates because of your poor CIBIL score, which can also make it harder to obtain approved for these types of credit.

Measures to Improve CIBIL Score After Loan Settlement 

After a loan settlement, you can follow these measures to raise your CIBIL score:

Pay All of Your Bills on Schedule and in Full

This is the most crucial action you can take, particularly following a debt settlement, to raise your credit score. It’s critical to make all of your payments on time because even one missed payment might lower your credit score. You can schedule your payments in advance, pay more than the minimum payment, or set up a payment reminder system to ensure that you make all of your payments on time. 

Acquire a Secured Credit Card

Following a loan settlement, a secured credit card is a fantastic place to start when trying to repair credit. Your credit limit is established by the deposit that is needed. This implies that the amount of money you can spend cannot exceed the amount deposited. Your credit score will rise if you apply your secured credit card sensibly and pay all of your bills on time. This is because you will be perceived by lenders as a trustworthy borrower who is dedicated to repaying your debts.

Limit How often you Apply for Fresh Credit

On your credit report, a hard inquiry is made each time you apply for a new credit card or loan. You may see a brief drop in credit score, perhaps a few points, from hard inquiries. It is advisable to use credit cards only for necessary expenses that you can afford to pay back each month, to avoid opening too many credit cards at once, and to shop around and compare offers from different lenders if you need to apply for a new loan or credit card in order to keep your credit utilization ratio low and limit the number of hard inquiries on your credit report. You may reduce the quantity of hard credit queries by doing this.

Maintain a Low Credit Utilization Ratio

To put it another way, you should only spend a tiny fraction of your total available credit. It is advisable to maintain your credit card balance below ₹3,000, for instance, if your credit limit is ₹10,000. Excessive utilization of available credit can lower your credit score. This is due to the fact that lenders see it as evidence of overstretching and impending debt default. Use your credit cards solely for required purchases that you can afford to pay off each month to reduce your credit utilization ratio. Try to pay more than the minimal amount each month if you are unable to pay off your entire balance.

Contest Any Errors Found on Your Credit Report

Your credit report serves as a history of your credit, thus it’s critical to ensure its accuracy. You can dispute any inaccuracies with the credit bureaus if you discover any on your credit report, such as canceled accounts or payments that were made but not documented. Obtaining a copy of your credit report from each of the three main credit bureaus—Equifax, Experian, and TransUnion—and carefully reviewing it to check for inaccuracies are a few steps you may take to dispute problems on your credit report. Make a dispute with the credit bureau that reported the inaccuracy if you locate one. Errors can typically be contested over the phone, online, or mail.

Remain in Control of Your Debt Payments

Paying off debt each month should not exceed 40% of your monthly income as a general rule of thumb. This demonstrates to lenders that you are responsible with your debt and are not overextending yourself. Pay off debt as soon as possible and steer clear of new debt when you’re taking out a new loan or getting a new credit card. Make sure the monthly payments are manageable and won’t take up too much of your money.

Be Pervasive and Patient

It takes time and work to rebuild your credit score, If results don’t appear right away, don’t give up. Maintaining consistency in your financial practices is also crucial for improving your credit score. Maintaining a low credit utilization ratio, not taking on new debt, and paying all of your bills on time and in full are all part of this. Your credit score may be impacted by mistakes like missing payments or opening an excessive number of new credit accounts. Thus, maintaining discipline and adhering to your financial strategy are crucial.

Seek Assistance When Necessary

There are people and organizations that can offer you if you’re having trouble managing your debt or raising your credit score. Speak with a financial advisor or credit counselor. They can assist you with understanding your credit report and score, making a budget, and coming up with a plan to pay off your debt. They can also provide guidance on how to strengthen your money management practices and stay out of debt in the future. You may raise your credit score and manage your debt with the aid of numerous resources. The Reserve Bank of India (RBI), the Credit Counselling Foundation of India (CCFI), and banks and financial institutions are a few examples.

Conclusion 

Raising your credit score is a process rather than an end goal. Although it requires time and work, the results are ultimately worthwhile. You can start to repair your credit and enhance your financial future by completing the aforementioned procedures. Asking for assistance is nothing to be ashamed of if you need it. There are entities and people who genuinely care about your financial success.

Endnotes 

https://www.reddit.com/user/deepa_mehra245/comments/179s6p6/how_to_improve_your_cibil_score_after_a_loan/?rdt=42745

https://www.mymoneymantra.com/blog/how-to-improve-your-cibil-score-after-a-loan-settlement

https://www.debt.org/credit/improving-your-score/

https://www.consumerfinance.gov/ask-cfpb/will-paying-off-my-credit-card-balance-every-month-improve-my-score-en-1293/

https://www.lendingtree.com/credit-cards/articles/benefits-and-risks-to-adding-authorized-users-to-credit-cards/

https://www.consumerfinance.gov/about-us/blog/common-errors-credit-report-and-how-get-them-fixed

This article is written by Basheerah Qazeem, an Olabisi Onabanjo University student.