Stuck with Credit Card Debt? How to Improve Your Credit Score

Ans: You have an outstanding credit card debt that hasn't been cleared for three years. This has negatively impacted your CIBIL score, and you are concerned about how clearing the debt might affect your score.

Impact of Clearing the Outstanding Amount on CIBIL Score
Positive Impact: Clearing the outstanding amount will positively impact your CIBIL score over time. Your credit score improves when you settle debts, demonstrating responsible financial behavior to lenders.

Time Frame for Improvement: While clearing the debt will help, it may take a few months for your CIBIL score to reflect the improvement. Consistent, timely payments in the future will further boost your score.

Steps to Close the Credit Card Without Further Impact on CIBIL Score
Negotiate a Settlement: Contact the bank and negotiate a settlement for a lower amount. Ensure that the settlement is reported as "Paid in Full" rather than "Settled," as "Settled" can negatively affect your CIBIL score.

Full Payment: If possible, pay the full outstanding amount. This will ensure the account is closed cleanly and positively influence your CIBIL score.

Obtain a No Dues Certificate: After clearing the outstanding amount, request a No Dues Certificate from the bank. This document serves as proof that your account is fully settled.

Check Your CIBIL Report: After settling the debt, regularly check your CIBIL report to ensure the payment is reflected correctly. If there are discrepancies, raise a dispute with CIBIL.

Maintaining and Improving Your CIBIL Score
Timely Payments: Make sure to pay all future credit card bills and loan EMIs on time. This is crucial for maintaining and improving your CIBIL score.

Limit Credit Utilization: Keep your credit card utilization below 30% of the credit limit. High utilization can negatively affect your score.

Diversify Credit: Having a mix of secured (like home loans) and unsecured credit (like credit cards) can positively impact your score.

Monitor Your Credit: Regularly monitor your CIBIL score and report. This will help you stay informed about your credit health and take corrective measures if necessary.

Final Insights
Clearing your outstanding credit card debt is the first step towards improving your CIBIL score. While it might take some time for your score to reflect this improvement, consistent and responsible financial behavior will ensure a positive impact. Negotiating a settlement or paying the full amount, obtaining a No Dues Certificate, and monitoring your CIBIL report are key steps to closing the credit card account without further negative impact.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in