The terms Settled & Closed are terms often viewed in the CIBIL history, what is the reflection of these terms on the creditworthiness & the CIBIL score: it is important to be aware of what the impact of these transactions can be.
Variable circumstances or unplanned budgetary spending may lead to delays in repayment of loans or credit card spends: an applicant unable to pay regular EMI or clear credit card bills will incur additional interest on the amount due to the Bank or NBFC.
Reminders are issued regularly to the applicant to clear the pending dues, in case of further non payment there will be calls made on behalf of the Bank team or collection agencies. It is in the interest of the applicant to make the payment as soon as possible, as there is no running away & chances to avail further credit will be in jeopardy.
At this juncture if the applicant pays the entire amount due to the lender, with the interest accumulated on the principal, pays all credit card dues & chooses to give up the card: the credit card or loan account will be treated as Closed. The parent Bank or NBFC will then issue a no dues letter to the borrower, having received the complete payment & update records accordingly.
If the borrower is unable to pay the pending dues, the collection agents of the Bank will offer the option of a settlement: in a settlement a discount is offered, which could be a waiver of the interest due on the principal debt.
A receipt will be given to the applicant for the payment made: the Credit line will then be terminated by the lender. Further interest will not be charged on the unpaid dues & the applicant will no longer be pursued up to pay the balance. The account will be marked as settled in the records of the Bank/ NBFC providing the facility.
Updating of the CIBIL record:
The CIBIL of the borrower will be updated as per following information.
- The Loan amount issued.
- The issue date of the loan /activation date of the credit card.
- The payment history: timely payments, delayed payments & bounces.
- The final status of the Loan as Closed or settled.
The effects of Closed/settled credit account.
Paying back the complete loan amount & closing the loan is a wise resolution, as the Bank/NBFC will mark the Loan account as paid back, all previous late payments may be viewed as a temporary aberration & as a period of financial problems due to an emergency. The applicant can rebuild a credit standing & look forward to a fresh start.
The CIBIL record of the applicant will be updated as the loan account is closed: showing the loan as fully paid back to the lender & giving the date of complete repayment. The CIBIL score will record an upswing after the complete payment has been made. The track of the delayed payments will show permanently in the record of the loan holder but the final closure will mitigate to some extent the late payment record.
A settlement of a Credit card or loan is not a recommended option as the settled tag reflects that some amount is still due to the lender. Collection agents in a bid to recover the amount from the customer will sometimes mislead the customer to believe that with a partial amount paid back the complete loan obligation is over but this is not the case.
The CIBIL record will be updated as a settlement: the repayment record will show the dates on which the EMI has been paid, CIBIL records are updated as per the timely payments & number of days the payment has been delayed. An ensuing settlement will always reflect the amount paid & the balance due as per the records of the Bank/NBFC: which will further negate the CIBIL score. Every time the applicant applies for further credit, CIBIL history is viewed, the settled tag will be an encumbering.
The difference in amount to be paid may be not too much; if possible the applicant should pay back the difference even at a later date & change the status to Closed, it will be worth the while as a settlement will continue to haunt the CIBIL & the credit history of the applicant for times to come.