Bad news, if you have settled your loan; here is what you must do

Sifting through the best interest rates available on education loans, he finally selected one to apply to. However, within a few hours he was informed that the loan has been rejected due to a “settled” status reflecting in his credit report.

Your past credit behaviour has a long-lasting impact. Lenders view “settled” as risky, primarily because if you haven’t met your repayment obligation before, there are chances that you might do this again. Representational Image, source: Reuters

Nishant is a mid-level executive at a leading IT firm with three years of work experience. Now, he is keen to pursue his MBA at a renowned B-school. Nishant is no stranger to credit; he has used credit cards before, and taken a consumer durable loan to purchase an expensive, high-end smartphone. Three years ago, he had even taken a personal loan for a holiday to Europe.

Sifting through the best interest rates available on education loans, he finally selected one to apply to. However, within a few hours he was informed that the loan has been rejected due to a “settled” status reflecting in his credit report.

Unaware of the actual meaning of “settled” on his credit report, Nishant is confused — “settled” has a positive connotation, doesn’t it? Not necessarily, as Nishant discovered after a conversation with the lender.

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What ‘settled’ means
When Nishant had taken a personal loan for his European holiday, he had been paying the monthly installments on time. Unfortunately, towards the end of the repayment period, he had a personal emergency and couldn’t make payments. As he could not repay the full amount, the bank agreed to a certain settlement amount which he had paid. However, this was lower than the complete amount payable.

Due to this, the bank had reported this loan as “settled”. If he had made the entire payment, the loan would have been reported as “closed”. The “settled” status on his credit report was the reason why his education loan application had been rejected.

The solution
Nishant was advised to pay the remaining (outstanding) amount on his personal loan. After doing so, he procured the NOC (No Objection Certificate) from the bank and raised a dispute on the credit bureau’s website. The credit bureau was able to confirm this development with the bank and changed the status from “settled” to “closed” within 30 days.

Instead, it is advisable to be proactively cautious:
- Apply for credit cautiously, and avoid multiple credit cards or loans unless you can manage it responsibly
- Pay the entire amount due on time, every time.
- Continuously monitor your credit score and report to identify any information that can negatively impact your chances of getting loans in future

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If, in the past, you have settled your loan with your bank, do pay off the entire balance amount as soon as possible. And reach out to your bank to remove the “settled” status. Your future access to credit depends on it.

By: Sujata Ahlawat
(The writer is head, direct to consumer interactive, TransUnion CIBIL)

Source: DNA Money

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