How to Remove Loan Settlement Status from CIBIL Report (Step-by-Step)

If you’ve ever faced financial hardship and couldn’t repay your loan fully, chances are you opted for a loan settlement. While it might have offered temporary relief, it probably left a lasting scar on your credit report.

As someone who worked in the loan and credit sector at DCB Bank and Home First Finance, I’ve seen the serious impact that “settled” status can have on a person’s CIBIL score and overall financial health.

In this detailed guide, I’ll share step-by-step strategies to remove the “settled” status from your CIBIL report, restore your creditworthiness, and make yourself loan-worthy again.

💡 What Is a Loan Settlement?

Loan settlement occurs when you’re unable to repay the full outstanding loan amount and the bank agrees to accept a reduced amount as a final settlement.

Let’s say you owe ₹1,00,000 on a personal loan but are unable to pay due to job loss or medical emergency. The bank might agree to close the loan account if you pay ₹70,000.

While this looks like a win on the surface, it comes at a huge cost:

Your CIBIL report shows the account as “Settled”, not “Closed”.
Your credit score drops by 75–150 points.
Future loan and credit card applications may get rejected.
Banks see you as a high-risk borrower.

⚠️ Why “Settled” Status is Bad for Your CIBIL Report

In my banking career, I reviewed thousands of credit reports. The moment I saw a settled status, it raised red flags.

Here’s why:

Status	Meaning	Impact on CIBIL
Closed	Loan repaid in full with interest	Positive
Written Off	Bank gave up on collecting the loan	Very Negative
Settled	Part payment accepted; balance waived	Negative

“Settled” means you did not honor the full contract. Banks treat this differently from regular repayment and penalize you in future lending decisions.

🛑 Can You Remove “Settled” from CIBIL?

Yes, but only in specific cases.

There is no automatic way to remove a settled status unless:

You repay the remaining balance (post-settlement).
The lender agrees to update your status voluntarily.
You file a successful dispute for an inaccurate entry.

Let’s break this down into actionable steps.

✅ Step-by-Step Process to Remove “Loan Settlement” from CIBIL Report

Step 1: Get Your Latest CIBIL Report

Before you do anything, download your updated credit report from CIBIL or any other bureau (Experian, Equifax, CRIF).

You can get a free report once a year from:

Look for:

Loan account details (type, amount, bank)
“Status” column: Should say “Settled”
DPD (Days Past Due): Shows your payment irregularities

This will be your starting point.

Step 2: Contact Your Lender for a Closure Payment

This is the most effective way to remove the settled tag.

👉 Visit or call the bank/NBFC that settled your loan.

Tell them you are willing to repay the balance amount (the portion that was waived during settlement) and request them to:

Accept the remaining balance
Issue a No Dues Certificate (NOC)
Update the account status to “Closed” in CIBIL

🎯 Real Case from My DCB Bank Experience:

A customer settled a loan in 2020 for ₹1.8L against ₹2.5L. In 2022, he came back and paid the remaining ₹70,000 voluntarily. We issued a closure letter and updated his report. His CIBIL score jumped from 614 to 723 within 45 days.

Step 3: Get a Written Confirmation

Never trust a verbal assurance. Once the bank accepts your balance payment, ask for:

Final NOC mentioning the entire loan is cleared
Closure letter with account number and date
Written confirmation that the bank will update CIBIL with a “Closed” status

These documents are critical if you want to file a dispute later.

Step 4: Wait for 30–45 Days

After the bank updates your loan closure, it takes up to 45 days for the CIBIL report to reflect the change.

Monitor your report monthly to ensure the status changes from:

Settled → Closed

If it doesn’t, proceed to the next step.

Step 5: File a Dispute with CIBIL (If Status Doesn’t Change)

If the lender fails to update the report after 45 days, you can raise a CIBIL Dispute online:

Here’s how:

Visit: https://www.cibil.com/dispute
Log in and go to ‘Credit Report Disputes’
Choose the loan account in question
Select “Dispute Type” as “Account Information”
Mention: “The loan has been repaid in full. Request update from Settled to Closed. NOC attached.”
Upload scanned NOC or closure letter
Submit and track status

CIBIL will contact the lender for verification and update the entry if confirmed.

Step 6: Monitor & Rebuild Your Score

Once the “Closed” status reflects, you’ll notice a steady increase in your credit score. In most cases I’ve seen, scores improved by 50–100 points in 2–3 months.

But don’t stop there—work on improving your credit profile with:

Timely credit card payments
Keeping credit utilization below 30%
No unnecessary loan applications
Regular credit monitoring

🧠 Pro Tip: Negotiate for “Closed” Instead of “Settled” During Hardship

This is a golden tip I always gave clients while working at Home First Finance.

If you’re genuinely struggling to repay and approaching a bank for a settlement, negotiate upfront:

“Can you accept 70% payment and mark my account as ‘Closed’ instead of ‘Settled’?”

Some banks, especially NBFCs, may agree if:

You’re willing to make a lump sum payment
You have a genuine hardship reason
You provide all documents and are cooperative

This saves your CIBIL score from major damage.

🚫 What NOT to Do

Avoid these mistakes that most borrowers make:

Mistake	Why It Hurts
Ignoring your report after settlement	Leaves a long-term “Settled” mark
Paying balance without NOC	No proof for dispute
Applying for new loans immediately	Will likely get rejected
Not raising a dispute after 45 days	Status won’t change automatically

Always treat your credit report like a passport—it defines your financial identity.

📜 Sample Letter to Bank (For Updating “Settled” to “Closed”)

You can use this template to write to your lender:

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[Branch Manager Name]  
[Bank/NBFC Name]  
[Branch Address]  

Subject: Request to Update CIBIL Status from "Settled" to "Closed"

Dear Sir/Madam,  

I had a loan account (No: XXXXXXXX) with your institution, which was settled on [Date] due to [reason: financial hardship/job loss/etc.].  

I have now repaid the remaining outstanding amount of ₹[amount] on [date] and have attached the payment receipt and NOC.  

I kindly request you to update the status of my loan in CIBIL and other credit bureaus as “Closed”.  

Thank you for your cooperation.

Sincerely,  
[Your Name]  
[Contact Details]

🧾 Documents You’ll Need

Here’s a checklist to help you manage this process smoothly:

Document	Purpose
CIBIL Report	To identify the settled loan
NOC or Closure Letter	Proof of final payment
Payment Receipts	For disputed entries
ID Proof	For bank verification
Dispute Form (CIBIL)	If status doesn’t update

🏁 Final Thoughts: Don’t Let a Settled Loan Haunt You Forever

Settling a loan isn’t a crime—it’s a financial decision. But what matters is how you handle it after the storm passes.

From my experience in the lending industry:

Most borrowers don’t even check their CIBIL after settlement.
Very few know they can reverse the impact by paying the waived amount.
Those who act strategically often get better loan terms within a year.

So take action. Get clarity. Make that final payment if possible. And rebuild your credit the right way.

✍️ Author:

Pritam Kumar
Former Deputy Manager – DCB Bank
Ex-Credit Officer – Home First Finance
Fintech & UX Strategy Enthusiast
Founder – ImproveCibil.com

How to Remove Loan Settlement Status from CIBIL Report: A Step-by-Step Guide