Can "settled" or "written off" Status Affect my Credit Score?

06-Feb-2019 written by : FSI-Team

Status Affect my Credit Score?

Whether you want a loan, credit card, or even a new job in the banking industry, your credit score will play a big role. However, there are many things that can harm it easily. These include late credit card payments, high credit utilization, and credit report discrepancies. But what about comments like “settled” or “written off” in your credit report? Can these hurt your score too? The answer is “yes”, but to understand why that’s the case exactly, we need to understand what it really means.

What’s “settled” or “written off”?

When you take a loan such as a home loan or a personal loan, then the lender expects you to repay it within a certain period. However, we don’t live in a perfect world, and a lot of times, people just can’t repay the loan. Some do it willfully, while others have genuine problems like loss of job, medical emergency, etc. Either way, when a customer stops paying the EMIs, then the lender sends them a notice as a reminder. If the borrower is unable to or refuses to repay the loan still, then the lender may propose to “settle” the loan. This is usually the last resort if both parties are unable to resolve the dispute through other means.

If you choose to “settle” the home loan or personal loan, then you have to pay only a portion of the actual loan amount. Once you pay this amount, the loan account is closed. However, when this happens, then the lender also adds a remark that says “settled” or “written off” in your credit report. Both of these terms signify that the borrower failed to repay the loan and hence defaulted. As a result, the lender had to settle for a lower amount to close the ledger. So, while you may get off the hook by settling the loan and you don’t have any further financial liability, the remarks left by the lender can greatly hurt your credit rating.

How much damage can a “settled” loan cause?

The short answer to this question is “a lot”. The long answer would be that not only a settled loan totally disrupts your cibil score calculation as loan default is a serious offense, but it also raises big bright red flags for your future lenders. So, if you will ever apply for another loan in the future, then when the lender checks your credit report, they will see the remarks and immediately realize that yours is a risky profile as you have defaulted on a loan in the past. Needless to say, obtaining a new loan in this situation becomes impossible.

Can you reverse the damage?

If you notice that your credit report has remarks of a “settled” loan and it’s messed up your cibil score calculation, then you needn’t worry. There is a way to fix this if you are willing to work for it.

Here’s how you can reverse the damage on your credit report- first, you need to prepare to repay the full debt. There is no way around this step. If you owe the bank some money, then you are expected to repay it by any means.

If you have the remaining portion of the debt available, then you can approach your bank and let them know that you are willing to do the right thing. In most cases, they will be happy to accept the payment from you. Once that’s done, you can request them to contact CIBIL and have them remove the remarks from your report. If they agree, then they can do the needful. If all goes well, the remarks are removed from your report and you are able to see the changes within a month or two depending on how frequently CIBIL updates the records. In addition to that, you can also see a major improvement in your credit score itself.

As you can see that remarks like “settled” or “written off” reflect poorly on you and can close the doors of other lenders. So, it’s best to avoid defaulting in the first place. If, for some reason, you are unable to repay your loan, then you can also ask your bank to grant some more time. However, you should never default in any situation.



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