Settling a credit card debt can provide much-needed financial relief, but it often leaves a lasting dent on your credit score. A settlement typically reduces your score by 75 to 100 points and leaves a “settled” status on your report, signalling repayment difficulties to lenders for up to seven years. While this can hinder access to loans and credit, disciplined financial behaviour can help you rebuild your credit health over time.
Manish Shara, Co-founder and CEO of ZET, says, “After settling your credit card dues, improving your credit score is a gradual process built on discipline. The first step is ensuring every future payment, whether a card bill or a loan EMI, is made on time without exception. Keep credit utilisation low, ideally under 30% of your overall sanctioned limit, as this signals control rather than dependence on credit.”
“Make sure to avoid multiple fresh applications in quick succession, since they can raise red flags for lenders. Where possible, keep older accounts active to maintain a longer credit history. You can also opt for a secured product, such as an FD-backed credit card. These practices gradually rebuild trust and strengthen your credit profile,” he added.
Therefore, keeping the above-mentioned important points in mind, here are five actionable steps borrowers can take to get started with improving their credit score responsibly:
1. Understand the impact of settlement
The first step is to clearly understand the basic concepts and differences between a ‘settled’ and a ‘closed’ credit card settlement. A “settled” status differs from “closed” and indicates prior repayment challenges. Being aware of this impact helps you focus on corrective actions and proper due diligence in the future.
2. Pay your credit card bills promptly
On-time repayments of EMIs, credit card bills, home loans, personal loans, or any other kind of credit instruments are extremely important. Consistency showcases to lenders that the respective borrower can be trusted and can manage their financial obligations prudently.
3. Maintain low credit utilisation
You should try to ensure that you always use only a fraction of your sanctioned limit. This figure should ideally be below 30% consistently. This way, you can showcase to lenders as a borrower that you are not overly reliant on debt and are not credit hungry. For example, if the permitted credit limit is ₹1,00,000, then the credit card user should never use more than ₹30,000 of this available credit limit.
4. Diversify credit, avoid frequent applications
It goes without saying that a mix of different kinds of credit types boosts the borrower’s credit profile. This means if you can manage different credit cards, home loans, personal loans, etc., effectively without default for years together, then such a credit mix is a very impressive sign for prospective lenders about your creditworthiness.
5. Obtain a digital or physical NOC
If you have followed all instructions and repaid the remaining dues, you should promptly secure a No Objection Certificate (NOC), i.e., a NOC from your respective lending institution as a proactive borrower. This single document will help you keep yourself safe in case you are forced to face legal cases or questioning. The status in the NOC certificate should also be clearly changed from ‘settled’ to ‘closed’ to dispel any future doubts and complications.
The country’s leading credit bureaus, such as CRIF High Mark, CIBIL, Equifax, and Experian, provide detailed credit reports. Proactively monitoring the reports, raising and resolving doubts and issues, can ensure borrowers can spot mistakes early and track progress. With patience, persistence, and discipline, rebuilding your credit score becomes entirely achievable.
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