Understand whether credit card settlement lowers your CIBIL score and how to manage the effects to keep your credit profile healthy.
Last updated on: January 14, 2026
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Yes, settling a credit card can negatively impact your credit score. A "settled" status indicates you didn't repay the full amount, which may lower your score by 75-100 points or more. This record can stay on your credit report for up to seven years.
Your CIBIL score plays a crucial role in determining your creditworthiness, reflecting how well you manage your debts. When you are unable to pay your full outstanding balance, especially on revolving credit like credit cards, it can impact your credit score.
After obtaining a credit card, you are required to pay your outstanding bills each month. Although you are expected to pay the full credit card bill, issuers allow you to pay the minimum due to avoid penalties and maintain good account standing.
If you are unable to pay your full dues due to unavoidable circumstances, the issuer may agree to a credit card settlement. This means paying a reduced amount of the total outstanding balance instead of the full dues.
Once you pay the agreed amount, the issuer marks the debt as ‘Settled’, and you are no longer responsible for the remaining balance.
A one-time settlement involves paying a reduced amount, agreed with the issuer, to clear your credit card dues. While this resolves the debt, it indicates that you were unable to repay the full amount as agreed.
After the settlement, your credit report marks the account as ‘settled’ rather than ‘closed,’ indicating lenders that you did not fully honour the original terms. This status can affect your ability to secure new credit and lenders would also charge higher interest rates.
The ‘Settled’ status can create several issues, for instance:
It signals financial difficulty and an inability to meet credit obligations
It can lower your CIBIL score by 75 to 100 points
The impact of a credit card settlement can remain on your credit report for up to 7 years
It may limit your access to new loans or credit cards and lead to higher interest rates
The ‘Closed’ and ‘Settled’ statuses on your credit report may seem similar, but they affect your credit score in very different ways. Here is what each means:
A credit card account is marked as ‘Closed’ when you repay all your credit card dues in full. This status indicates that the account was managed responsibly, and no further payments are required. Closed accounts with a clean payment history are generally seen positively by lenders and do not harm your credit score.
A ‘Settled’ status shows that only part of the outstanding balance is paid or negotiated. While the account is technically closed, this status indicates that the full repayment terms were not met. This can negatively impact your credit score, and future lenders may see you as a higher-risk borrower.
To learn how to settle a credit card debt, you need to understand the process that requires clear communication and proper documentation. It is generally a three-step method:
Both parties record all details in writing. It will denote the settlement amount and the payment timeline. This written record ensures transparency and serves as a binding agreement.
You need to clear the amount. Payment can be done in instalments based on the settlement policy. You need to follow the terms decided in the agreement.
The issuer will close the account after receiving payment. The credit report then shows the settlement status. This marks the end of the process.
If you have already settled your credit card, you can work to rebuild your score. You can follow these tips to rectify the impact of credit card settlement on your CIBIL score:
Make it a habit to pay all your credit card bills, EMIs, and other dues promptly to stay on top of your finances. Regular payment will signify reliability and consistency, which can increase your score.
Credit utilisation is the ratio of your used credit to your total available credit. Aim to keep this ratio below 35%, as a higher ratio can indicate financial stress and negatively affect your credit score.
Use different types of credit accounts. Depending only on one form of credit may hurt your profile. A mix of loans and credit cards presents balanced financial behaviour.
Every new credit application triggers a hard inquiry on your report. Avoid applying for multiple loans or credit cards within a short period. Too many applications make you look desperate and dependent on borrowed funds.
Unexpected events may affect repayments, but settlement should be your last resort, as it harms your credit history. If you must settle, you can gradually rebuild your CIBIL score by clearing dues, paying bills on time, and maintaining disciplined repayment habits.
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Credit card settlement can offer immediate relief by reducing your debt, but it may leave long-term damage to your financial reputation. You need to assess the immediate gains and the lasting drawbacks thoroughly before making a decision.
It usually takes 6 to 12 months, depending on your financial discipline. You can improve your score by paying bills on time, reducing credit utilisation, and maintaining a balanced mix of credit. The settled status will, however, stay on your credit report for 7 years.
The negative settlement status will remain on your report for about 7 years from the original date of delinquency. The only way to avoid it is by paying the full amount. This will change the status from ‘Settled’ to ‘Closed’.
Settling a credit card debt can lower your CIBIL score by a few points. This drop, combined with the settled status, can make it harder to obtain future loans or credit cards, often resulting in higher interest rates.
This is at the discretion of your lender, and it is essential to discuss this directly with your issuer before proceeding, as policies can vary.