However, it is vital to know that this faster and easier access to finance is dependent upon factors such as one’s income along with credit history in the form of their CIBIL report and score
In this digital age, access to financial products and opportunities have become faster and easier to the extent that personal loans and credit cards get approved almost instantly and home loans within a couple of days. However, it is vital to know that this faster and easier access to finance is dependent upon factors such as one’s income along with credit history in the form of their CIBIL report and score. A CIBIL score above 750 can be a catalyst to get your loans approved - this score proves your repayment capability to the lender. In addition to a good credit score, accounts section in your credit report must also be checked to ensure that there is no detrimental status like “settled”, “written off” or any days past due “DPD” reflecting in your report.
Let’s look at Mita Karmakar’s case. Mita, at an insurance company, is a hard and diligent senior employee who always ensures her personal and professional responsibilities are in complete order, including her finances. With prudence in all her financial transactions, she expected no hurdle while applying for a car loan as a reward to her son for excelling in his University examination. Upon checking her CIBIL score and report, with a score of 765, she was confident about getting a loan easily. Mita went to her bank and spoke to a bank official for a car loan. On reviewing Mita’s CIBIL Report, the bank official informed Mita that although she had a high CIBIL Score, her loan application may not be approved as her old credit card account showed a “settled” status and this was detrimental to her loan approval. Mita had made a settlement on a credit card she owned 4 years back, on which she had accumulated dues. A surprised Mita decided to take corrective action as she did not want to take a chance on her loan application.
Mita consulted a colleague who previously worked in a bank about the difference between “settling” and “closing” and its impact on her loan application. Her colleague described the two as follows:
If an individual has partly paid their dues and settled a loan or credit card then the status reflects as \"settled\" in their credit report. When one settles an account, it means that the credit institution is agreeing to accept a payoff amount that is less than the amount originally owed. Because the lending institution is at loss, a status of “settled” may be considered potentially negative and detrimental to the chance of loan approval. There will be entries in the DPD section of the report reflecting that the payment on the loan has not been timely. Each bank has its own policy of viewing a “settled” status and decides on future-loan applications accordingly.
If an individual finds a date adjacent to the “closed” field in their account section, this means that that loan account has been closed by the lender. In other words, it means they have paid off their loan in full and the bank has reported this account as “closed” to CIBIL.
After closing a loan it is important to obtain a no dues certificate (NDC) from the lender. Banks issue NDC or closure letter while closing loans, stating that the loan stands closed and then report it as “closed” on a person’s CIBIL Report.
An informed Mita asked her colleague whether she should raise a dispute request with TransUnion CIBIL. Her colleague advised her that though a dispute resolution request can be raised, unless the bank changes the status, her CIBIL report would still reflect the old remark.
Mita understood that she would have to pay back the amount shown as outstanding against her name. To remove the “settled” status, she approached the lender and made the balance payment. Once the payment was made the lender reported the updated information and closed status on the account.
After accessing her updated credit report and ensuring that the credit card account now showed a “closed” status, Mita once again applied for her car loan which in this instance was approved immediately.
From Mita’s example, it can be understood that while a lot of us negotiate with the bank to 'settle' a pending loan, a settlement is detrimental to your credit worthiness and banks may refrain from approving your loan. Even if you have a relatively good score, a \"settled' status against a loan could easily deny you credit opportunities.
The writer is chief operating officer, TransUnion CIBIL
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