Financial Planning when backed by disciple, patience and consistency, can be the foundation for rebuilding your financial health after a loan settlement.
A loan settlement occurs when you negotiate with your lender to pay a portion of your outstanding loan amount as a one-time settlement (OTS).
While this relieves short-term financial pressure-it does affect your credit score. A Loan Account is marked as “SETTLED” rather than “PAID” or “CLOSED”. This is still a better proposition than the loan being “WAIVED-OFF” wherein the lender does not recover any money from your loan account. This status can remain in your credit report updated and maintained by credit bureaus like CIBIL, Experian and Equifax determining your credit-worthiness as a borrower.
Here’s what you can do to re-build your credit score:
- Creating a Structured Budget:
Allocate 10% of your monthly income towards saving and investment can do wonders to your financial health.
- Maintaining a Healthy Credit-utilization Ratio:
Maintaining a low credit utilisation ratio of 30% of your total available credit limit shows healthy financial behaviour on your part. It shows that you are not credit-hungry and have funds to cushion your expenditure and investments.
- Plant an Emergency Fund:
Building an Emergency Fund of 3-6 months helps create a financial safety net for you and your dear ones. These can prove as green thumbs when it comes to grow your savings and build your financial health.
- Pay Outstanding Dues and EMIs on time:
Paying outstanding loans and repaying credit-building small term loans on time can hasten the process of rebuilding your credit score after going through a loan settlement process.
- Regularly monitor your credit report:
Be vigilant when it comes to checking your CIBIL Score (between 300-900) as this shows your credit-worthiness to potential lenders and non-banking financial institutions.
- Avoid taking unnecessary New Credit:
Avoid taking any new unnecessary credit and pay bills and existing EMIs in a timely fashion.
With consistent efforts, smart budgeting and prudent financial planning, your credit score will be on the path of improvement within 12-18 months of a loan settlement. As the saying goes, “A stitch in time saves nine”- timely financial discipline today lays the foundation for a strong, secure financial tomorrow.
