Have you made a debt settlement in the past and this blunder mistake has ruined your CIBIL report completely? As a consequence, in recent times, the bank’s managers are rejecting your loan/ credit card application due to the “Settled” status in your CIBIL report. Now, you are wondering about the ways to remove settled loan from CIBIL report.
Life is full of uncertainty; maybe in the past, you had faced financial hardship (Like job loss/ accident/ serious medical conditions/ loss in business, etc.) and you could not repay your loan EMIs or credit card bills for a long time. At last, you agreed to make a One Time Settlement (OTS).
Sometimes, customers close their loan accounts through settlement without knowing about it. The Bank manager offered a little discount on the closer amount and provided the No Dues Certificate. After a long time, when the customer applied for a new loan, he came to know that he had settled status in his previous loan. If the same things happened to you, then you should remove the settled loan from your CIBIL reports for future emergencies.
What does ‘settlement’ mean in a CIBIL report?
Loan settlement refers to a mutual agreement between the lender and the borrower; in which circumstance, the lender agrees to accept a lesser amount than the actual loan outstanding and close the account.
In general, when a borrower fails to pay his loan EMIs or credit card bills for a long time (more than six months), the account is considered as a Non-Performing Asset.
To recover the loan amount, the bank offers the borrower to pay a discounted amount of the outstanding balance in a single payment, also known as One Time Settlement (OTS). After payment, banks close the loan and provide the NOC to the customer.
Important things to be noted that there are no common/ standard guidelines related to the calculation of loan settlement amount and settlement criteria. Typically, it varies depending upon the internal guidelines of each lender.
How does loan Settlement affect your CIBIL score?
As per the Credit Information Company (Regulation) Act 2005, when you close a loan account under compromise settlement, the respective lender updates the same status in your CIBIL and other credit reporting companies.
And, you can find the loan status mentioned as “Settled/ Post (WO) Settled” in your CIBIL report, which is also considered as a negative remark and affects your CIBIL score remarkably.
The settled status not only hampers your CIBIL score; but also reduces the possibility of getting a new loan or credit card approval in the future. Lenders may find risk as you can not pay your debt outstanding in the past.
That’s why they are reluctant regarding new loan approval for the customers with settled status in their CIBIL report.
For some special cases, like home loans, car loans, mortgage loans, etc. lenders may accept your loan application in exchange for high interest rates and less favourable terms & conditions.
****Myth about the Settled record in CIBIL report:
There is a myth regarding the settled record in a credit report; which states that the settled loan will be removed from CIBIL automatically after 7 years from the account closing date. Although you can find numerous articles on the internet, it’s not true, especially for the Indian citizen.
As we all know TransUnion, Experian, and Equifax also operate their business around the world. In the USA, all these credit bureaus removed the borrower records from their credit report after 7 years from the date of first account delinquency.
Not only the negative status, but they removed the entire loan account from their consumer credit report after a certain period. However, there are no provisions or guidelines in India for the same.
In India, if you made a compromise settlement in any of your prior loan accounts, the “Settled” remark will remain in your credit report for life long, until unless you clear the remaining (Outstanding) balance toward your loan account and rectify your CIBIL report accordingly.
The process to remove settled loan from CIBIL report:
Case 1: If the default loan is unknown to you:
You have applied for a new loan/ credit card, but the bank manager refused your application. From the bank manager, you came to know that there is a settled status in your CIBIL report.
But, when you checked your CIBIL report, you noticed that you had never taken the particular loan in your life. Additionally, you also find that there are several incorrect information presents in your CIBIL report. In that case, there is a possibility that a data mixing error is happened with your CIBIL report.
As a leading credit report company of India, TransUnion CIBIL manages a huge database for each individual and commercial borrower. When two customers have similarities in their name, DOB, addresses, and identification details, then such kind of data mixing error happens. And, as a result, unknown default loans can be reported in your CIBIL report.
In that case, you can remove all those incorrect information easily by raising an online dispute in CIBIL as the default account “Does not belong to me”. You can also write a complaint letter in CIBIL along with your KYCs & CIBIL report.
After getting confirmation from the respective bank, CIBIL will remove the unknown settled loan account from your CIBIL report.
Case 2: If you genuinely settled one of your prior loan accounts:
The only way to remove settled status from CIBIL report is to pay the remaining (outstanding) amount on the respective loan, which you settled earlier. But the whole rectification process is not too easy.
In most cases, lenders may refuse to accept any further payment as your loan account has been already closed. But you can overcome all those difficulties by following these steps.
Contact with the lender:
The first and foremost step will be contacting the respective bank and collecting the demand letter from them.
For that purpose, you can send an email, call on their customer service, or visit the loan-availing branch and ask them to share the remaining (outstanding) amount that you need to pay further to remove the settled status.
Usually, all banks maintain a separate pull/ suspense account to collect such kind of payment and rectify their customers’ credit reports.
In case, the bank manager denies to accept any further payment, you should email their grievance/ Nodal desk or visit the regional office. After investigation from their end, the bank will provide you with the exact amount details and payment methods. Be noted, collect all these details in written format.
Pay the remaining (outstanding) balance & collect NOC:
After collecting the payment details, pay the same amount as per their instructions. And, don’t forget to collect a No Dues Certificate against the full & final payment. Actually, all this evidence will be required to remove settled status from CIBIL report.
Raise dispute in CIBIL:
Now, to remove settled status from CIBIL report, you have to raise an online dispute in CIBIL. First, login to your CIBIL portal and go to the dispute section.
In the dispute form, change the “Settled/ Post (WO) Settled” status by “Clear Exiting Status”. If there is any Written-off Amount (Total+ Principal), Settled Amounts are mentioned in your CIBIL report, make all those details zero and submit the dispute. After the successful submission, a Dispute ID will be generated.
Additionally, write a complaint in CIBIL and elaborate all the details in the letter. And, attach your KYCs, the latest CIBIL report, and the full & final payment receipt, the NOC. By submitting the complaint letter in CIBIL, you will get a ServiceRequest Number.
TransUnion CIBIL will forward your concern to the respective lending institute for to verify the loan status. Based on their investigation, CIBIL will notify the dispute status through your email, check your emails to get any updates.
Sent a request to the lender for the required correction:
In addition to this, you can also senda separate email to the concerned lender for the faster resolution. And, take the required actions based on their responses. You have to maintain a continuous follow-up with both CIBIL and the bank until the require correction is made.
Important Note: If you have taken a loan from any PSU (Public Sector Undertaking) bank and due to non-payment, the account became written-off and then you settled the loan.
Under such circumstances, you may notice the “Written-off” status in your CIBIL report. To remove the written-off status, you have to clear the unpaid due amount and follow similar methods to rectify your CIBIL.
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