When you settle a loan, it means the lender has agreed to accept a lesser amount than what was originally due. While this helps in clearing outstanding dues, it reflects as a “settled” status in your credit report rather than a “closed” status. This indicates to future lenders that you did not pay the full amount, making them wary of extending credit to you.

A settled account can lower your CIBIL score by 50 to 100 points or more, depending on your credit history. Lenders often view settlements negatively, as they indicate financial distress or an inability to meet repayment obligations. Therefore, rebuilding your credit profile after settlement requires patience, discipline, and a well-planned approach.

Steps to Improve Your CIBIL Score After Settlement

1. Obtain and Review Your Credit Report

The first step in improving your CIBIL score is understanding where you currently stand. Obtain your credit report from CIBIL and check for:

• The status of the settled account
• Any discrepancies or errors in reporting
• Other outstanding debts or unpaid loans

If you notice any errors, such as incorrect settlement records or unpaid accounts that you have already cleared, raise a dispute with CIBIL and have them corrected.

2. Clear Any Remaining Dues

If you have other outstanding debts, prioritize clearing them. Any unpaid loans or credit card balances continue to affect your credit score negatively. Focus on clearing:

• Overdue payments
• Late fees and penalties
• Remaining credit card balances

Timely payment of all remaining dues will prevent further damage to your credit history.

3. Negotiate a ‘Closed’ Status for the Settled Loan

A settled status remains in your credit report for several years, impacting future credit approvals. Contact your lender and negotiate to change the status from “settled” to “closed” by offering to pay the remaining balance. This is known as a goodwill payment and, if accepted, can significantly improve your credit profile.

4. Make Timely Payments for All Existing Credit Lines

After settlement, one of the most critical factors in rebuilding your CIBIL score is ensuring all your current credit accounts are paid on time. This includes:

• Existing loans
• Credit card bills
• Utility and EMI payments

Even a single missed payment can further damage your score, so set up reminders or auto-debit facilities to ensure prompt payments.

5. Use Credit Cards Responsibly

While it may be tempting to stop using credit cards altogether, responsible usage can help rebuild your credit score. Here’s how:

• Use a secured credit card: If your credit score is too low, apply for a secured credit card against a fixed deposit. Responsible usage and timely payments will boost your credit score.
• Keep credit utilization low: Avoid maxing out your credit card. Maintain a credit utilization ratio below 30% of your total credit limit.
• Pay the full balance: Avoid making only the minimum payment. Paying the full outstanding amount each month improves your creditworthiness.

6. Diversify Your Credit Portfolio

Having a mix of different types of credit can positively impact your score. Consider applying for a small personal loan or consumer durable loan and repaying it diligently to showcase responsible credit behavior.

7. Limit New Credit Applications

Each time you apply for a loan or credit card, lenders conduct a hard inquiry on your credit report, which can lower your score. Avoid multiple loan applications in a short period, as it indicates financial desperation and lowers your creditworthiness.

8. Maintain a Long Credit History

The length of your credit history plays a crucial role in your CIBIL score. If you have an old credit card with no dues, keep it active rather than closing it. A long-standing account with a good repayment record adds to your creditworthiness.

9. Monitor Your Credit Report Regularly

Check your credit report periodically to track your progress and identify any negative changes. Regular monitoring helps you stay on top of your financial health and address any issues before they worsen.

How Long Does It Take to Rebuild a CIBIL Score?

Rebuilding your CIBIL score after settlement is not an overnight process. It typically takes:

• 6 months to 1 year to see minor improvements if you follow disciplined financial habits.
• 1 to 2 years to achieve a significantly better score if you make consistent, timely payments and avoid new defaults.
• 3 years or more to reach an excellent score (750+) if you maintain good credit behavior and avoid negative marks on your report.

Conclusion

Improving your CIBIL score after a loan settlement requires patience and a structured approach. By practicing disciplined financial habits such as timely payments, responsible credit usage, and monitoring your credit report, you can rebuild your score and restore your creditworthiness. Over time, lenders will gain confidence in your financial stability, making it easier for you to secure loans and credit facilities at favorable terms. Start today, and take proactive steps to regain financial control and a strong credit profile.