How to Improve CIBIL Score after Settlement?

By Admin / 06 Sep, 2025

Summary

CIBIL Score is a financial number that reflects your creditworthiness. This score determines how eligible you are to get a loan in the future. When you are unable to pay a loan in full and settle the loan by agreeing with the bank or NBFC, it is called a “Settlement”. This process gets added negatively to your CIBIL report, which reduces your score and may make it difficult to get a loan or a CIBIL Score in the future.

But the good news is that even after settlement, your CIBIL Score can be improved again. For this, you have to adopt some important habits—like paying all EMIs and bills on time, avoiding excessive credit use, getting the mistakes in the old report corrected, and taking small loans and repaying them on time. Apart from this, you can also strengthen your credit history by using a Secure CIBIL Score.

The process of improving the score is not a matter of one or two months, but it requires consistency and discipline. If you move ahead with proper financial planning for 6 to 12 months, your CIBIL Score definitely improves.

Introduction

In today’s time, if you want to take a loan, need a CIBIL score or need any kind of financial help, then banks and financial institutions first check your CIBIL score. This score is based on the repayment history of your old loan or your CIBIL score. If you have paid your loan installments on time, then your score is good, but if you have “settled” a loan, then it can have a bad effect on your CIBIL score.

Settlement means that you request the bank that you cannot repay the entire loan, so the loan should be closed by paying some part. The bank may agree to this and put your loan in “settled” status. Even though this reduces the burden of your EMI, it creates a negative image on your credit history. In the future, when you go to take a loan from another bank, this status of settlement stands like a wall in front of you.

Improving CIBIL Score is possible, but it requires a little patience, the right strategy and regular discipline. You have to bring transparency in your financial behavior, start with small steps and understand how each step can improve the CIBIL Score. Whether it is the right use of credit card, paying bills on time or talking to the bank to correct an old mistake – everything is part of this process.

In this article, we will know in detail what are the 10 easy and effective ways to improve your CIBIL Score after settlement. We will tell you how to check your credit report, get it corrected if you find any mistakes in it, take new credit responsibly, and gradually take your score to the height again.

What is a CIBIL Score?

CIBIL Score is a three-digit number that tells how you have used the loan or CIBIL Score earlier. We can also call it the report card of your credit behavior. This score ranges from 300 to 900, and the higher the score, the better it is considered.

If your score is 750 or more, then the bank believes that you repay the money responsibly, and you can easily get a loan or CIBIL Score. But if the score is less than 600, then the bank suspects that you have not repaid the loan properly earlier, and they hesitate to give you a loan.

This score is made on the basis of your credit report, in which it is seen when you took the loan, how much you took, whether you paid the EMI on time or not, how many active CIBIL scores you have and how you used them.

What is a Loan Settlement?

Loan Settlement is a process in which you negotiate with your creditor to forgive a part of the outstanding amount on your Loan by making a lump sum payment. It is an agreement that you make with your card issuer as a last resort when you see that your Loan debt is increasing.

This can happen due to many reasons, ranging from unnecessary spending to careless spending habits. When your debt increases, the interest on it also increases, which can make it difficult for you to repay the outstanding amount. If you do not see any way out of this, then you can recommend a Loan Settlement.

What documents are required to do a Loan Settlement?

Let us know what documents are required for a Loan Settlement.

1. ID Proof

Aadhar Card
PAN Card
Passport
Driving License
Voter ID

2. Address Proof

Aadhar Card (if it has the correct address)
Electricity or Water Bill
Copy of Bank Passbook or Bank Statement
Rent Agreement (if you live on rent)

3. Income Proof (if required)

Salary Slip (if you are employed)
Bank Statement (last 6 months)
Copy of Income Tax Return (ITR)
Business Documents (if you are a businessman)

4. Loan Statement

You will have to provide the Loan statement to give the correct information about your outstanding balance. The bank can also generate this statement itself, but sometimes they ask you for a copy of it.

5. Settlement Request Letter

If you are approaching the bank for settlement on your own, you will have to give a written Settlement Request Letter in which you can explain:

Why do you want a settlement?
What is your financial situation?
How much can you pay as a one-time payment?

6. Settlement Offer Letter given by the bank

When the bank agrees to the settlement, they give you a Settlement Offer Letter. Read it carefully and confirm the amount and terms mentioned in it.

What to do before doing a Loan Settlement?

Below are some steps that should be followed before a Loan Settlement:

First of all, check your income, expenses, and all other debts properly. Know how much you can repay.

Before a Loan Settlement, share your problem with the bank or lender.

Sometimes, they can offer you a better solution, such as reducing the EMI or increasing the loan term.

Contact a financial advisor or expert. They can help you make the right decision and explain how a Loan Settlement will affect your credit score.

If you decide to do a Loan Settlement, read the terms and conditions given by the bank carefully. Make sure that you are not being charged any hidden fees.

Doing a Loan Settlement can reduce your credit score. This can make it difficult to get a loan in the future. Make a decision keeping this in mind.

Loan Settlement should be the last option. Before that, consider other options like refinancing, reducing EMIs, or asking family and friends for help.

What are the reasons for doing a Loan Settlement?

Below are some common reasons:

If a person loses his job, stops a source of income, or suffers huge losses in business, then it may be difficult to repay the loan on time.

There may be a shortage of money to repay the loan if the expenses suddenly increase due to a major illness or medical emergency.

Many times, a person has the burden of more than one loan, which becomes difficult to repay on time.

There may be problems in repaying the loan due to any natural disaster, accident, or any major crisis in the family.

If the interest rate of the loan is very high and there is a problem in repaying the installment, then a Loan Settlement is resorted to.

Many times, a person is not able to manage his expenses and income properly after taking a loan, which causes problems in repaying.

How to apply for Loan Settlement?

If you are unable to pay your Loan dues and are troubled by heavy interest rates, a Loan Settlement can be a possible solution. Under this process, the bank or Loan company can waive off part of your total outstanding amount and give you the option to make a lump sum payment (One-time Settlement). However, this can affect your CIBIL score, so adopt it only as a last option.

Step-by-step process to apply for Loan Settlement

First of all, decide that you are not in a position to pay the entire Loan dues.

Check your income and expenses and decide how much you can pay at the most.

Talk to the customer care of your bank or Loan company and tell them about your current financial situation.

Ask for a settlement offer from the bank and start the conversation.

The bank will propose a settlement amount, which will be lower than your outstanding amount.

If you don’t accept this amount, negotiate with the bank and attempt to lower the amount based on your capacity to pay.

After the bank and you reach an agreement on a specific amount, ensure that you receive a written settlement letter.

It should explicitly state the settlement terms, payment dates, and other conditions.

After completing the settlement, pay the amount in full within the given time.

Get a No Due Certificate (NOC) or Final Settlement Letter from the bank after the payment.

After the settlement, make sure the bank updates the “Settled” status in your CIBIL report.

This can affect your credit score, so inculcate good financial management habits to improve it in the future.

What is the impact on the CIBIL score after a Loan Settlement?

A settlement can hurt your credit score. The impact can be seen in the following ways:

After the settlement process, your credit report records that you have “settled” your debt. This entry remains in your credit history for 7 years and can be viewed negatively by lenders or other creditors, which can affect your chances of getting a loan in the future.

Since a settlement means that you have not repaid the entire debt, when you try to get a new loan in the future, banks may reject your application or offer you loans at higher interest rates by looking at your credit score and report.

After settlement, if you have a Loan or other credit line, your credit limit may be reduced as creditors think you may be a high-risk customer.

If your credit score drops, it may be difficult for you to get a loan, Loan, or any other type of credit facility. This can also affect your financial stability, especially if you face a financial emergency in the future.

When you settle with your bank, you are not paying off the entire debt, but a certain amount that is less than the principal amount. This is viewed negatively by the credit bureaus, as it shows that you have been unable to repay your debt. As a result, your credit score may drop.

How to improve your CIBIL score after settlement?

When you settle a loan or CIBIL score, that is, instead of paying the full amount, you settle the loan by paying a small part of the amount with the bank, then this adds a “settled” status to your credit report. This shows the bank that you did not pay the full amount, due to which the CIBIL score falls.

But don’t panic – you can improve this score again. With the easy methods given below, you can gradually improve your CIBIL score again:

1. Check your credit report

First of all, see your CIBIL report. Check whether the settlement information is recorded correctly or not. If there is any mistake, then immediately file a complaint with CIBIL and get it corrected.

2. Change the settlement to “Closed”

If you can pay a little more after the settlement, talk to the bank and get your status changed from “Settled” to “Closed” by paying the remaining amount. This will have a very good effect on your score.

3. Take a new small loan and repay it on time

If your situation has improved, take a small personal loan from a bank or NBFC and repay it on time. This will improve your CIBIL Score as it shows the bank that you are now trustworthy.

4. Use the Credit Card Properly

If you can get a secured credit card (card against FD), then take it. Pay its bill on time and do not spend more than the limit. This will improve your credit history.

5. Repay the old dues

If any other outstanding amount is visible in your report, then repay it quickly. This strengthens your credibility.

What are the best ways to improve your CIBIL score?

If you want to take a loan or are thinking of applying for a CIBIL score, then, first of all, banks and financial institutions look at your CIBIL score. If the score is good, then the loan is also easily available, and the interest rates are also low. But if the score is low, then the loan may be rejected. In such a situation, you must improve your CIBIL score.

So let’s know the best and effective ways to improve your CIBIL score:

1. Pay EMI and CIBIL Score bills on time

Your CIBIL score depends most on whether you pay your EMI and card bills on time or not. Even a single late payment can lower your score. Therefore, it is most important to pay on time.

2. Use less of CIBIL score limit

Using more of the credit limit you have got shows CIBIL that you are more dependent. Try to use less than 30% of the limit.

3. Do not apply for more than one loan/card at the same time

If you apply for a loan or CIBIL score repeatedly, it leads to many “hard inquiries”, which harm the score. So apply wisely.

4. Maintain old credit history

Do not close the old CIBIL score or loan account that is active and you pay it on time. This increases your credit age, which is good for the score.

5. Check your credit report regularly

There may be some mistakes in your report, like an old loan that is still showing as “outstanding”. Identify such mistakes and file a complaint with CIBIL, and get it corrected.

What are the advantages (Pros) of doing a Loan Settlement?

Let us know what the benefits of doing a Loan Settlement are:

If your Loan dues have become very high, and you are unable to repay them, then a settlement can give you great relief.

When you do not pay your Loan continuously, the bank can send a legal notice to you and can also send a recovery agent.

The interest on Loans is very high, which can be up to 30-45% per annum. If you are not paying on time, the interest and late payment fees keep increasing continuously.

While settlement will bring down your CIBIL score, provided you exercise financial responsibility after settlement and settle your other loans and bills punctually, you will improve your score over time.

In a Loan Settlement, you pay a specific sum at one time, which settles your debt entirely. It may be helpful to the persons who desire to come out of debt by increasing a little money at a time.

Mental tension grows through rising debt and bank calls. On settlement, you are free from this concern, and you may concentrate on better financial status again.

What are the disadvantages (Cons) of doing a Loan Settlement?

Let us know in detail what the disadvantages of doing a Loan Settlement are.

The biggest disadvantage of a Loan Settlement is that it spoils your CIBIL score. When you settle with the bank and pay a lesser amount instead of paying the entire dues, the bank reports it in “Settled” status. This status can remain in your credit report for up to 7 years, which may make it difficult to get a loan or a new Loan in the future.

If you have done a Loan Settlement once, banks and other financial institutions may consider you a “high-risk customer”. This may cause problems in getting a home loan, personal loan, or business loan, or the bank may give you a loan at a higher interest rate.

In some cases, when you go to take a loan from another bank in the future, the bank may ask you to repay the entire previous settlement amount after looking at your credit history. That is, if you had settled by paying Rs 50,000 on an outstanding amount of Rs 1 lakh, then the new bank can demand the remaining Rs 50,000 from you.

If you have settled a Loan with a bank, then the same bank can refuse to issue you a Loan again in the future.

Doing a Loan Settlement can spoil your relationship with the bank. The bank sees it as if you have not fulfilled your financial responsibilities completely, due to which you may face problems in banking services in the future.

Conclusion

CIBIL Score is a mirror of your financial condition. This score tells how responsibly you have paid your loan and CIBIL Score till now. If your score has fallen due to any reason—such as loan settlement, late payment, or high credit usage—then there is no need to panic. The score can be improved again, but it requires time, patience, and discipline.

If you start paying your EMI and CIBIL Score bills on time, use only the minimum credit limit, and avoid applying for loans repeatedly, then gradually, your score can improve again. Also, if there is any mistake in your report, then it is also important to get it corrected. Some people also improve their score by using a Secure CIBIL Score.

It is important to note that the score does not improve in a day, it requires continuous efforts for 6 to 12 months. A good CIBIL score is not only important for loans or CIBIL score but also for your future financial plans. Therefore, by adopting financial discipline, you can improve your score and become a financially strong and reliable person.

Frequently Asked Questions (FAQ’s)

Que: Why CIBIL Score drop after settlement?

Ans: When you “settled” the loan, the bank took it as a partial payment and not as full payment. It indicates your credit behavior as poor, which drops your CIBIL Score.

Que: Does the IBIL Score increase after settlement?

Ans: Yes, if you make EMIs and bill payments timely in the future, utilize credit limit judiciously, and form new credit habits, the score will improve slowly.

Que: How is a settlement different from full payment?

Ans: Full payment implies that you have paid the entire loan or outstanding balance, whereas settlement implies that you have paid some amount as per the agreement with the bank, which is not a full payment.

Que: Can a settlement be deleted from the CIBIL report?

Ans: Once the Settlement is included in the report, it stays for 7 years. But you can attempt to change the status to “Closed” from the bank’s side, but that also varies according to the bank’s policy.

Que: How long do I have to wait for the score to pick up after Settlement?

Ans: If you have a good financial history for 6 to 12 months consecutively, the score can get better over time. But it varies with the report of an individual.

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