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Settling a Credit Card debt can be a relief, but it might leave a lingering mark on your CIBIL score. A 'settled' status signals to lenders that you weren't able to repay the full amount due. This can impact your ability to obtain loans or credit in the future at competitive rates. Here’s how you can improve your CIBIL score after Credit Card settlement, positioning yourself favourably for future credit opportunities.
Understand your account status
Get a copy of your credit report from CIBIL. Look for the section detailing your Credit Card account. The status should now reflect as 'settled' since you didn't pay the full amount. This is different from 'closed' (full payment) and 'written off' (no payment after 180 days).
Impact of Credit Card settlement
A Credit Card settlement can significantly impact your CIBIL score. It occurs when you settle a debt for less than the amount you owe. While it may provide immediate financial relief, it also indicates to potential lenders that you were unable to fully meet your credit obligations. This can be a red flag, resulting in a lower credit score.
Aim to change status to 'closed'
Negotiate with your bank to repay any remaining balance on your 'settled' Credit Card. After paying it in full, request that your account status be updated to 'closed'. This demonstrates your commitment to financial responsibility.
Steps to improve your CIBIL score
1. Review your credit report: Start by obtaining a copy of your credit report from CIBIL. Review it for any inaccuracies or outdated information. If you find errors, dispute them immediately. This can help you improve your CIBIL score after Credit Card settlement by removing any incorrect data that may be negatively affecting your score.
2. Clear outstanding debts: If possible, clear other existing debts. This demonstrates financial responsibility to lenders and can gradually improve your credit score.
3. Maintain a low credit utilisation: Aim to use less than 30% of your credit limit on any card. Lower credit utilisation ratios are viewed favourably and can positively influence your score.
4. Ensure timely payments: Going forward, ensure you pay all your bills on time. Late payments can severely impact your credit score. Setting up reminders or automatic payments can help manage this effectively.
5. Limit credit enquiries: Every time you apply for credit, a credit enquiry is initiated. Too many enquiries in a short time can lower your score. Apply for a new Credit Card only when absolutely necessary.
Utilise a secured Credit Card
Consider using a secured Credit Card, which requires you to deposit a sum of money as collateral. Axis Bank's Insta Easy Credit Card requires a minimum Fixed Deposit of ₹20,000 and offers a credit limit of up to 80% of the deposit amount. This card can be a valuable tool to rebuild your credit score by demonstrating responsible credit behaviour without the risk of accruing unmanageable debt.
There are multiple benefits to this approach -
- Rebuild credit history: Demonstrates responsible credit behaviour without the risk of accruing unmanageable debt.
- Attractive interest rates: Competitive rates compared to regular Credit Cards.
- Rewards and benefits: Enjoy points, discounts, and cashback offers!
Diversify your credit
Having a mix of credit types, such as Home Loans, Personal Loans and Credit Cards, can positively affect your credit score. Consider diversifying your credit with products like Axis Bank's Personal Loans, which offer amounts up to ₹40 lakh with flexible repayment options and competitive interest rates starting at 10.75% p.a.
Also Read: Credit Card debt: What is it & how to escape it?
The bottom line
Improving your CIBIL score after a Credit Card settlement requires patience and discipline. By following the aforementioned practices, you'll put yourself on the path towards a better credit profile and brighter financial prospects.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
