If your loan was rejected because you had just 'settled' your outstanding dues and not 'closed' it altogether, then here's how you can get this loan approved. 

Rohan Apte, a gazetted officer with the Indian Railways, had a stringent timetable not only for his professional tasks but also for his financial and personal obligations. His year was planned with an online calendar marked with official commitments, holiday dates, his children's school meeting dates, family functions as well as his monthly electricity, phone bill, loan EMI and credit card bill due dates.

Being a man as disciplined as he was, both on the professional and personal front, Rohan checked his CIBIL Report and CIBIL Transunion Score before applying for a car loan. With a score of 784, Rohan was certain of driving the car home for the upcoming Ganesh festival. Prior to filling the loan application, Rohan consulted a banker friend in order to ensure his eligibility for the loan and also showed his friend the CIBIL Report and CIBIL TransUnion Score.

On reviewing Rohan's CIBIL Report, his friend informed Rohan that although he had a high CIBIL TransUnion Score, his loan application may not get approved as one of his old credit card account showed a 'Settled' status. Rohan had made a settlement on a credit card he owned three years back, on which he had accrued dues.

A baffled Rohan failed to understand this and asked his friend how a settled status on a three year old credit card account could have an impact on his loan application. After all he had a high credit score.

Rohan's friend then explained to him some vital facts:

• An individual's CIBIL Report shows past 36 months of credit history. The CIBIL TransUnion Score although is calculated based on 24 months of credit history.
• If a customer partly pays the dues and settles a loan or credit card then the status will reflect as 'Settled' in his credit report. However if the customer has fully paid the dues and the loan provider has closed this account then the status should reflect as 'Closed' in the customer's credit report.
• Even though an individual may have a high CIBIL TransUnion Score owing to good and timely credit payment behaviour in the past 24 months, his loan application gets evaluated based on his overall credit history as reflected in the report.
• In Rohan's case as he had made a 'settlement' on an old credit card, his credit report reflected a 'Settled' status against that account.
• It is important to understand that though there will be no impact of the 'settlement' flag on the customers CIBIL TransUnion Score, his credit history will show a 'Settled' status in his CIBIL Report and there will be Days-Past-Due reflecting on the report since the payment on the loan has not been timely.
• Each bank has its own policy of viewing at a 'Settled' status and will decide on the consumers future loan applications accordingly.

Having explained the implications of 'Settlement' to Rohan, his banker friend advised Rohan to get this 'settled' flag removed from his credit report before applying for the car loan. He counselled Rohan to initiate these steps:

• A 'Settled' status on the credit report cannot be changed unless the customer pays back all the dues and the loan/credit card is closed.
• Approach the bank/credit card company and offer to fully pay all the accrued dues and penalties if any and close the credit card or loan.
• Once the dues are paid in full the lending institution shall then report the status on this loan to CIBIL as 'Closed'.
• Your CIBIL Report will then show the status on this account as 'Closed'. Please remember that CIBIL can only make changes to your report, once the lending institutions submit the updated data.

By diligently following the counsel of his friend Rohan was able to get the settled flag removed from his credit report. After accessing his fresh credit report and ensuring that the credit card account now showed 'Closed' status he applied for the car loan which got approved instantly. Rohan is now looking forward to driving his own car home for the upcoming Ganesh festival.

Illustration: Uttam Ghosh/Rediff.com

Harshala Chandorkar is Senior Vice President -- Consumer Services and Communication, CIBIL