There are various factors that lenders consider before approving your loan application. One of the crucial factors in a loan application is your credit score. Lenders check your credit report to know the status of your previous loans. This tells them how you have managed credit. This lays the basis of your creditworthiness, and therefore leads to an approval or rejection of your loan application. If your credit report carries an instance of a “settled” loan, your creditworthiness will be considered low.
Important Contents Of A Credit Report
The account section in a credit report has information about all the loans, credits and credit cards availed by you and the repayments done. Based on the loans availed and payments made, your credit report is prepared. The account section has also a space on the status of each credit account. The status mentioned provides an insight into the health of your credit/loan account. Take a look at some common status:
Settled: This means that while you have settled a loan, you didn’t pay your dues in full. Defaulting on your loan or card dues, and then taking the option to make a one-time settlement, would lead to a “settled” status for that account. After you’ve defaulted on a loan, your lender may offer you new repayment terms where you close the account with a part-payment of your dues. The ‘settled’ status is considered detrimental for loan approval as lenders view it as a risk to a borrower’s repayment capacity. Settling a loan will certainly damage your credit score, making new borrowings difficult.
Closed: A ‘closed’ status on your account means you have fully paid the loan, meaning no principal, interest or other charges were due to your lender. Loans paid through pre-payment of the principal dues are also granted this status.
How To Convert A Settled Status To A Closed Status
Even if you ‘settle’ a loan, your credit score gets wrecked. You still have the option of paying your dues in full and rectify your situation. To get settled loan changed to closed, pay the outstanding amount of the loan to the lender. After repaying the entire loan amount and closing the loan, ensure to take a No Dues Certificate (NDC) from the lender. An NOC is issued by the lender stating that the loan stands closed. The lender reports the same to the credit bureau. You need to flag the same to the credit bureau, which will change the status from settled to closed within 30 days.