5 Expert-recommended Ways To Improve Credit Score Post Settlement

Settling a credit card debt can offer financial relief, but it often leaves a mark on your credit profile. A 'settled' status signals repayment challenges and may lower your credit score, affecting access to loans and credit products for several years. However, with disciplined financial behaviour, borrowers can gradually rebuild their credit health. Understanding the implications of settlement, maintaining responsible usage, and adopting strategic repayment habits can help restore financial credibility and improve creditworthiness over time.

Understanding the Impact of Credit Card Settlement

When a credit card debt is settled, the account reflects a 'settled' status rather than 'closed'. This indicates that repayment difficulties occurred, which can temporarily reduce a borrower’s credit score. Recognising this impact allows borrowers to adopt corrective measures and plan future repayments more prudently.

Pay All Credit Obligations on Time

Consistent and timely repayment of credit card bills, EMIs, home loans, and personal loans demonstrates reliability to lenders. On-time payments are one of the most influential factors in restoring creditworthiness and signalling responsible financial behaviour to financial institutions.

Maintain Low Credit Utilisation

Credit utilisation refers to the proportion of available credit being used. Keeping this figure below 30% of the sanctioned limit highlights financial discipline and reduces dependence on debt. For example, with a credit limit of ₹1,00,000, using no more than ₹30,000 at any time can positively influence your credit profile.

Diversify Credit Carefully and Avoid Frequent Applications

A balanced mix of credit types, such as personal loans, home loans, and credit cards, can strengthen a borrower’s credit profile. At the same time, multiple loan or credit card applications in quick succession should be avoided, as they can signal higher credit risk to lenders.

Secure Official Clearance Documentation

After settling debts, borrowers should obtain a formal clearance document, such as a No Objection Certificate (NOC), confirming that all dues have been fully repaid. Ensuring that the account status is updated from 'settled' to 'closed' prevents future misunderstandings or complications when applying for new credit.

Monitor Credit Reports Regularly

Regularly reviewing credit reports from major bureaus ensures that any discrepancies are identified and resolved promptly. Accurate reporting of repayments, settlements, and other financial activities allows borrowers to track improvements in their credit profile and make informed decisions.

Practice Patience and Financial Discipline

Rebuilding credit health is a gradual process. Borrowers should focus on long-term discipline, including maintaining low debt, avoiding unnecessary credit applications, and adhering to repayment schedules. Over time, consistent financial behaviour can restore a strong credit score and improve access to loans and other financial products.

Disclaimer: This article is for information only. According to experts, the strategies described here can help borrowers improve their credit score and financial credibility, but final loan approvals and credit evaluations are at the discretion of lending institutions.