What is settlement in Credit Report?

You would have came across this term “Settlement” in your credit report. There are 4 RBI approved credit bureaus they are CIBIL ,Experian , Equifax and Highmark. The term settlement is explained below

Settlement

Settlement means the Banks or the Lender agrees to accept the payment of amount which is less than the actual due which you need to pay. In simple terms the Bank will wave off some amount from the actual due and bear certain loss to recover at least a partial amount of due from the borrower. The objective of the bank is to recover the principal amount due and cost.     

A borrower thinks that after settlement his/her Credit Score will improve drastically. Please note that it is not true. In such cases the lender may not consider the borrower’s application due to poor credit history.

Example, If Mr. XYZ is defaulting on Car Loan of Rs.20 Lakhs Bank will charge certain penalties and interest on amount defaulted. Assuming total amount due is 22 Lakhs. As a defaulter XYZ is not willing to pay the entire due of 22 Lakhs then the bank will offer Mr. XYZ a settlement. Therefore, the bank may offer to settle the account for 21Lakhs. Balance 1Lakh will be waived off. This doesn’t mean he has cleared 100% dues of the bank.

In such case the Credit score of Mr. XYZ may reduce from 800 to 650 i.e 150 or 160 CIBIL points may get reduced if he has done settlement.

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