How to Improve CIBIL score after Loan Settlement?
How will you improve your CIBIL score after loan settlement? There are some people among us who have got their first job in life and they also get a good salary there. After some time, they easily get a credit card and also get a personal loan.
But they use the credit card too much. After that, their job becomes unstable or due to some other financial crisis, they are not able to pay the credit card bill on time. They are also not able to pay the EMI of unsecured loans on time. Because of this, they go for loan settlement.
But after doing settlement, their CIBIL score drops badly and they are not able to get loans in the future. In such a situation, how can you improve your CIBIL score after loan settlement so that you can get loans in the future?
Here I have explained many steps, but at least one step you must follow. And if you follow multiple steps, your CIBIL score will improve even more. Let’s see what steps you need to follow to properly improve your CIBIL score.
How to improve CIBIL score?
Here I have explained many steps, but at least one step you must follow. And if you follow multiple steps, your CIBIL score will improve even more. Let’s see what steps you need to follow to properly improve your CIBIL score.
What is loan settlement?
First of all, let’s understand what settlement is. If a customer has taken a credit card or a loan and is not able to repay on time. The first EMI is missed, the second EMI and third EMI are also missed.
After this, the loan account goes into NPA status. Even after that, the customer is not able to make the payment. So in the case of a credit card, after about 6 months, the customer may get an offer that “we are giving you a discount, now you can pay the full amount at once and close the loan.”
In the case of unsecured loans or MSME loans, the bank takes even more time. Only after that they offer settlement. Here, when the customer takes a discount and closes the loan, it is called settlement.
Impact of settlement on CIBIL score
Now the problem comes when the customer has done loan settlement. The bank marks that particular account as “settled” in the CIBIL report, and this is a negative status. Because of this, the CIBIL score drops completely.
The CIBIL score goes down and the negative status also appears in the report. Because of this, it becomes very difficult for them to get a loan in the future. In India, there is a myth that this negative status gets removed from the CIBIL report after 7 years.
Some people say this. I have seen some YouTubers also saying this and I have read content on websites where it is mentioned that after 7 years, this negative status, the settled status, gets automatically removed from the CIBIL report. But this is not true.
This confusion is because there are three credit bureaus – CIBIL, Experian, and Equifax – and these bureaus also operate in the USA. In the USA, there is a rule that after 7 years or 10 years, the credit bureau can remove bankrupt accounts from their database.
But in India, this is not the case. If you want to remove that negative status, then you have to pay the waiver amount that you had taken. Only after you make the payment, the settled status can be removed.
If you have a credit card or personal loan from a private bank, they may ask you to pay the discounted amount that you had taken. But in the case of PSU banks, they may also add interest along with the waiver amount.
Being a CIBIL rectification agency, we get such cases every day where we see that even after 10 years, 15 years, or even 20 years, the settled status has not been removed.
How will you improve your CIBIL score?
1. Pay remaining outstanding amount
The first thing you need to do is pay the remaining outstanding amount towards your loan. The amount you had settled earlier by taking a discount, you have to deposit that amount now.
As I mentioned, if you had taken a loan or credit card from a private bank, you can clear the outstanding amount and get the settled status removed. But in the case of PSU banks, they may add interest along with the discounted amount. In such cases, you can email the bank. Even for PSU banks, you should email them and ask for a demand letter.
Visit Branch if Required
They will send you the total outstanding balance in writing. In PSU bank cases, sometimes it becomes difficult and you may need to visit the branch manager.
When you go there, many times the bank manager may say that the loan is already closed and they cannot accept further payment. This is correct because once a loan account is closed, payment cannot be made in that account. But in this situation, your payment is taken in the bank’s pool account or general account. If the branch manager does not agree, then you should approach higher authorities.
You can visit the nearby district office or regional head office and request that you want to make the payment and convert your settled loan into a standard closed account. After that, they will guide you back to the branch manager with proper recommendations so that you can get the outstanding letter.
Once you receive the outstanding letter—either through email or from the branch manager—you can make the payment in the general account. The bank will also provide the account number for the payment.
2. Raise dispute in CIBIL
After making the payment, you will get a money receipt. Along with that, make sure to take a No Due Certificate again. This is important because the earlier certificate you received during settlement would have mentioned “settled.”
Now, since you are closing it as a standard account, it should be clearly mentioned. This document will help you remove the settled status from your CIBIL report and will also be useful when applying for loans in the future.
After making the payment, make sure to raise a dispute online in CIBIL. This is important because a settled account is considered closed and is not updated regularly.
In many cases, even after customers make the payment, banks do not update the status quickly on their own.
If you raise a dispute in CIBIL, your issue can get resolved faster. You can log in to the CIBIL portal and raise a dispute.
Apart from that, you can also fill out the form on the CIBIL portal, explain your issue in detail, and attach documents while submitting the complaint.
3. Contact bank separately
After filing the complaint, make sure you also send a request letter or email to the bank. I always recommend this because when you raise a complaint in CIBIL, they forward it to the bank for verification. But banks have different departments, and sometimes miscommunication happens. Because of this, the settled status may not get removed quickly, and sometimes banks don’t update it at all.
So it’s better to send a separate email to the bank along with your payment receipt and No Due Certificate. This helps the bank understand that you have already completed the payment but the update is still pending. In such cases, they usually update the details faster in CIBIL and your problem gets resolved quickly.
4. Important RBI update (2025)
Now, before moving to the next step, let me share an important update. In 2025, RBI introduced a new rule. Earlier, after settlement, if you made the full payment, the settled status used to get completely removed and the account would show as blank.
But now, if the account was written off and then settled (post write-off settlement), even after payment, the settled status may be removed but replaced with “post write-off closed” status. Some banks are already following this. For example, Axis Bank credit cards have started showing this issue, and other banks may also follow as per RBI guidelines.
5. Review your credit report
After removing the settled status, make sure to carefully review your CIBIL report. Check if there are any other problems. If you find any errors, get them rectified.
6. Pay EMIs on time
Keep repaying all your existing loans on time. If all your payments remain standard, your CIBIL score will gradually start improving.
If you have an existing credit card, keep your usage within 30% of the limit. Avoid using more than that. If you overuse and don’t pay on time, your score can drop. Keeping usage within 30% helps maintain a good score.
If you need a higher limit, you can take multiple credit cards. Even then, if you use only 30% of your total limit, your score will remain healthy.
7. Take credit builder loan
If you have done a loan settlement and your score has dropped, you may not easily get all types of loans because DPD (Days Past Due) is shown in your report.
In such cases, you can take a credit builder loan. For example, a gold loan—where you can mortgage gold and easily get a loan. Usually, credit score is not strictly checked, but the loan reflects in your CIBIL report and helps improve your score.
8. Use secured credit card
You can also take a secured credit card. After settlement, getting a normal credit card is difficult, but you can open a fixed deposit in a bank and take a credit card against it. This is called a secured credit card. You can use it like a normal card, and timely payments will help improve your score.
10. Apply for loans smartly
In some cases, even after settlement, you may get a housing loan—especially if the settlement is old, like a credit card settlement. Some banks may approve it, and NBFCs are even more flexible. Once you get the loan, its history reflects in your CIBIL report and helps improve your score significantly.
If your score is still low after settlement, avoid applying for loans repeatedly. Multiple applications lead to more enquiries, which can further reduce your score.
First, take a credit builder loan and repay it on time. This will improve your score and build a strong credit history. After that, apply for other loans.
Get expert help if needed
One more important tip—before applying for a loan, talk to the bank manager. Discuss your credit report and ask whether you are eligible. Then apply. Otherwise, repeated rejections will harm your score.