Be it an unprecedented situation, a medical emergency or a financial crisis, whatever has gone for a toss, you still are responsible for your credit history. You have to be financially responsible and manage your Credit Card Bills, EMIs, and dues all along.
When the situation goes out of hand, and you struggle to pay out your loans, your lender may come out with an alternate way out of One Time Settlement (OTS). But before you accept the offer to settle the account, you must understand what OTS means for you and your credit history.
A loan settlement is resolving the outstanding loan principal and interest amount by paying back a lower sum as a final call to close the account. Generally, the loan is settled at the principal amount wherein the lender waives off due interest.
The settlement of a loan account, however, incurs a financial loss to the lender, and they write off the waived off the amount in the accounts and report it as a loss. The same would be reported to the Credit Bureau.
A loan settlement thus appears negatively in your credit information report. Any negative history in your report would stay alive for 7 years and ruin your chances of availing a new loan in the future. The lender may also blacklist you for future transactions with their bank or financial institution. Thus, you should carefully set your terms before accepting the lender’s offer.
Before you accept the offer to settle your loan, you must ask the lender to close the account and not settle it. You can negotiate with the bank to clear the disputed items such as late payments etc. before making the payment. Ask for chargeback facility so that the disputed transaction of default or late payment is temporarily reversed.
Also, you must possess proof of payment before closing the account. Ask for a ‘no-dues certificate’ from the lender. This will help you dispute any erroneous report by the lender later on.
Although settling the loan account will ease your monthly EMI woes, poor credit score would still stay for a long to haunt you.
You must herein take a strict charge of your financial situation and take some rightful steps to improve your score. Let’s find out how to improve CIBIL score quickly after a loan settlement.
Your credit report is the first document a lender would access to evaluate your loan eligibility. So you need to ensure that you build some good history and wane off the bad past recorded in the report. Ensure that you repay all your credit bills and EMIs before the due date from now on. Repaying your monthly instalments on time builds up good score fast.
If there are other outstanding accounts such as credit card balance or loan accounts, make sure you clear off all the balance. Credit card balances adversely affect the CIBIL score. You must be careful not to let irregular payments hurt your score anymore.
Sometimes too many cards play foul. It does happen that an idle card that you no longer use is causing a default payment on annual charges and reflecting a red mark in your report.
You must thus check all old cards and preferably close the ones you no longer require. However, do retain the oldest card with good history. For, a long and good history is very helpful in raising future credit.
In case you do not have a credit card, you must apply for one. A settled loan should not stop you from using credit. Using a card optimally helps to enhance your credit score and loan approval chances. Make sure you use your card and repay the entire bill before the due date. This will help you build good score quickly.
In case you find it difficult to get a card, you must apply for a secured loan against a fixed deposit. You can start with a small FD up to Rs 25000-30000. The card provider will conveniently approve a card with 90 % limit of the FD.
Maintainingfavourablecreditutilisation ratio (CUR) also go a long way in helping you maintain a good score. Your CUR is a percentage of credit limit used against the sum of limit granted to you.
For example, if you own three cards with a limit of Rs. 20000, Rs. 25000, and Rs. 50000, your total credit limit is Rs 95000. Say, you use all cards up to Rs 20000 every month. So, your monthly credit usage is Rs 60000 or 63 per cent of the available limit.
To maintain ideal credit rating, you must not use your credit limit beyond 30%. Overconsumption of credit every month, makes you look credit hungry and spoils the score.
After the settlement, you need to ensure that no further action of yours show you a credit hungry prospect. Do not apply or query for a new loan within a few months of settlement transaction. For, a loan rejection can further tumble down your CIBIL score.
While you are repairing your score, you must only concentrate on repairing it and not seek further credit.
With bad score, it is more difficult to avail an Unsecured Loan than availing a secured one. In case you do need funding despite the poor history, make sure you apply for a Secured Loan and have a back-up for repayment. You can also consider roping in a guarantor or co-signor along to get a low rate loan.
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