Can I get a credit card again after a credit card settlement?

Summary

Credit cards have become an important financial tool for people in today’s time, but sometimes, due to inadvertence or financial problems, we are not able to pay the credit card dues on time. In such a situation, the option of Credit Card Settlement comes up between the bank and the customer, in which a settlement is made by paying not the entire dues but some part. Although this solution gives relief at that time, its long-term effect is on your credit report and CIBIL score.

After doing a Credit Card Settlement, the “Settled” status starts appearing in your credit profile, which can become an obstacle for a loan or a new credit card. In such a situation, the question arises: Can a credit card be obtained again after settlement? The answer is yes, but for this, you will have to take some necessary steps.

First of all, you have to work towards improving your credit history. For this, it is necessary to make payments on time, correct old mistakes and if possible, change the status to “Closed” by paying the settlement amount.

Introduction

In today’s era, credit card has become an essential financial tool for people. Be it shopping, online transaction, need of money in emergency or making a big purchase on EMI – credit card is useful everywhere. But many times people do not use it wisely and end up spending more. The result is that the outstanding credit card bill is not paid on time, the bill keeps increasing and then finally the matter reaches Credit Card Settlement.

Now the question arises – if you have got your credit card settled, can you get a credit card again in the future? Will the bank or financial institution be ready to give you a credit card again? This question is in the mind of many people, especially when they need money again or they want to improve their credit history.

Credit Card Settlement is a process in which the bank and the customer settle for a lower amount by mutual consent so that the remaining money can be waived off. This situation arises when the customer is unable to pay the entire credit card dues. Although this process gives relief to the customer at that time, it also affects his CIBIL score and credit report. The settlement is reported as “settled”, which may make it difficult to get a new loan or credit card in the future.

In today’s article, we will know in detail how to get a card again after a credit card settlement, what things are important to keep in mind, which banks can be expected from, and how you can correct your old mistakes and move towards a better credit future. If you have also ever gone through this situation or may face such a question in the future, then this information will be very useful for you.

What is a Credit Card?

A credit card is a plastic or metal card that a bank or financial institution gives to its customers. With its help, you can buy any goods or services without paying money immediately. In simple words, it is a kind of “card to spend on credit”.

When you purchase with a credit card, the bank makes the payment for you at that time, and later, you pay that amount back to the bank. The bank gives you a limit, which is called a credit limit. You can spend within this limit. Every month, when you get a bill, Hatch tells you how much you spent and how much is left to pay.

If you pay the entire bill on time, then you do not need any interest. But if you do not pay the entire bill or pay only the minimum amount due, then the bank starts charging interest on the remaining amount.

What will happen if you do not pay the EMI of the credit card?

Let us understand in simple language what can happen if you do not pay the EMI of the credit card.

1. Late payment charge and interest

If you have not paid the EMI on the due date, the bank can charge you a late payment charge. Also, the bank starts charging a high rate of interest on the outstanding EMI, which can usually go up to 36% per annum. This makes your EMI even more expensive.

2. Impact on CIBIL score

Your CIBIL score is very important for your financial future. If you do not pay EMI or pay late repeatedly, it gets recorded in your credit report, and your score may fall. This may make it difficult to get a loan or a new credit card in the future.

3. The outstanding keeps increasing

If you do not pay EMI, your outstanding balance keeps increasing because interest keeps getting added to it every month. The longer you do not pay, the bigger amount you will have to pay.

4. Recovery calls and notices

If you do not pay EMI for several months, then you start getting repeated calls, messages, or emails from the bank. After this, the bank can also send you a legal notice. In some cases, the bank can also send recovery agents to you.

5. Legal action can be taken

If your amount has become very high and you have not paid for a long time, then the bank can also take legal action against you. This can also affect your image and mental state.

What to do if you are unable to pay EMI?

• Talk to the bank and try to restructure the EMI.
• If your financial condition is bad, ask the bank about a moratorium or a settlement plan.
• Keep the auto-debit facility of EMI enabled so that payment can be made on time.
• If needed, seek the help of a financial counselor.

What is a Credit Card Settlement?

Credit Card Settlement is a process in which you negotiate with your creditor to forgive a part of the outstanding amount on your credit card by making a lump sum payment. It is an agreement that you make with your card issuer as a last resort when you see that your credit card debt is increasing.

This can happen due to many reasons, ranging from unnecessary spending to careless spending habits. When your debt increases, the interest on it also increases, which can make it difficult for you to repay the outstanding amount. If you do not see any way out of this, then you can recommend Credit Card Settlement.

What are the reasons for doing a Credit Card Settlement?

Below are some common reasons:

• If a person loses his job, stops a source of income, or suffers huge losses in business, then it may be difficult to repay the loan on time.

• There may be a shortage of money to repay the loan if the expenses suddenly increase due to a major illness or medical emergency.

• Many times, a person has the burden of more than one loan, which becomes difficult to repay on time.

• There may be problems in repaying the loan due to any natural disaster, accident, or any major crisis in the family.

• If the interest rate of the loan is very high and there is a problem in repaying the installment, then Credit Card Settlement is resorted to.

• Many times, a person is not able to manage his expenses and income properly after taking a loan, which causes problems in repaying.

What documents are required to do a Credit Card Settlement?

Let us know what documents are required for Credit Card Settlement:

1. ID Proof

• Aadhar Card
• PAN Card
• Passport
• Driving License
• Voter ID

2. Address Proof

• Aadhar Card (if it has the correct address)
• Electricity or Water Bill
• Copy of Bank Passbook or Bank Statement
• Rent Agreement (if you live on rent)

3. Income Proof (if required)

• Salary Slip (if you are employed)
• Bank Statement (last 6 months)
• Copy of Income Tax Return (ITR)
• Business Documents (if you are a businessman)

4. Credit Card Statement

You will have to provide the credit card statement to give the correct information about your outstanding balance. The bank can also generate this statement itself, but sometimes they ask you for a copy of it.

5. Settlement Request Letter

If you are approaching the bank for settlement on your own, you will have to give a written Settlement Request Letter in which you can explain:

• Why do you want a settlement?
• What is your financial situation?
• How much can you pay as a one-time payment?

6. Settlement Offer Letter given by the bank

When the bank agrees to the settlement, they give you a Settlement Offer Letter. Read it carefully and confirm the amount and terms mentioned in it.

What to do before doing a Credit Card Settlement?

Below are some steps that should be followed before a Credit Card Settlement:

• First of all, check your income, expenses, and all other debts properly. Know how much you can repay.

• Before a Credit Card Settlement, share your problem with the bank or lender. 

• Sometimes, they can offer you a better solution, such as reducing the EMI or increasing the loan term.

• Contact a financial advisor or expert. They can help you make the right decision and explain how Credit Card Settlement will affect your credit score.

• If you decide to do a Credit Card Settlement, read the terms and conditions given by the bank carefully. Make sure that you are not being charged any hidden fees.

• Doing a Credit Card Settlement can reduce your credit score. This can make it difficult to get a loan in the future. Make a decision keeping this in mind.

• Credit Card Settlement should be the last option. Before that, consider other options like refinancing, reducing EMIs, or asking family and friends for help.

How to apply for Credit Card Settlement?

If you are unable to pay your credit card dues and are troubled by heavy interest rates, Credit Card Settlement can be a possible solution. Under this process, the bank or credit card company can waive off part of your total outstanding amount and give you the option to make a lump sum payment (One-time Settlement). However, this can affect your CIBIL score, so adopt it only as a last option.

Step-by-step process to apply for Credit Card Settlement

• First of all, decide that you are not in a position to pay the entire credit card dues.

• Check your income and expenses and decide how much you can pay at the most.

• Talk to the customer care of your bank or credit card company and tell them about your current financial situation.

• Ask for a settlement offer from the bank and start the conversation.

• The bank will propose a settlement amount, which will be lower than your outstanding amount.

• If you don’t accept this amount, negotiate with the bank and attempt to lower the amount based on your capacity to pay.

• After the bank and you reach an agreement on a specific amount, ensure that you receive a written settlement letter.

• It should explicitly state the settlement terms, payment dates, and other conditions.

• After completing the settlement, pay the amount in full within the given time.

• Get a No Due Certificate (NOC) or Final Settlement Letter from the bank after the payment.

• After the settlement, make sure the bank updates the “Settled” status in your CIBIL report.

• This can affect your credit score, so inculcate good financial management habits to improve it in the future.

What is the impact on the CIBIL score after a Credit Card Settlement?

A settlement can hurt your credit score. The impact can be seen in the following ways:

• After the settlement process, your credit report records that you have “settled” your debt. This entry remains in your credit history for 7 years and can be viewed negatively by lenders or other creditors, which can affect your chances of getting a loan in the future.

• Since a settlement means that you have not repaid the entire debt, when you try to get a new loan in the future, banks may reject your application or offer you loans at higher interest rates by looking at your credit score and report.

• After settlement, if you have a credit card or other credit line, your credit limit may be reduced as creditors think you may be a high-risk customer.

• If your credit score drops, it may be difficult for you to get a loan, credit card, or any other type of credit facility. This can also affect your financial stability, especially if you face a financial emergency in the future.

• When you settle with your bank, you are not paying off the entire debt, but a certain amount that is less than the principal amount. This is viewed negatively by the credit bureaus, as it shows that you have been unable to repay your debt. As a result, your credit score may drop.

Can I get a credit card again after a credit card settlement?

Yes, but not directly. Settlement affects your credit history. This leads to a drop in your CIBIL score, and the next time you apply for a credit card, the bank may refuse to give you a card by looking at your old report.

But you can improve this situation by adopting some measures:

• Your credit score drops after settlement. Bring the score back to 700+ by making regular payments, repaying the loan or EMI on time.

• If you can pay the entire dues after settlement, contact the bank and get “Settled” changed to “Closed”. This improves the credit report.

• The bank gives you a Secured Credit Card in exchange for a Fixed Deposit. This builds up the credit history again and also the trust of the bank.

• Some NBFCs or fintech companies give cards with low limits to new customers. You can start from there.

• Keep checking reports from CIBIL or Experian from time to time and check if there are any errors.

What are the advantages (Pros) of doing Credit Card Settlement?

Let us know what are the benefits of doing Credit Card Settlement:

• If your credit card dues have become very high and you are unable to repay them, then a settlement can give you great relief.

• When you do not pay your credit card continuously, the bank can send a legal notice to you and can also send a recovery agent.

• The interest on credit cards is very high, which can be up to 30-45% per annum. If you are not paying on time, the interest and late payment fees keep increasing continuously.

• While settlement will bring down your CIBIL score, provided you exercise financial responsibility after settlement and settle your other loans and bills punctually, you will improve your score over time.

• In Credit Card Settlement, you pay a specific sum at one time, which settles your debt entirely. It may be helpful to the persons who desire to come out of debt by increasing a little money at a time.

• Mental tension grows through rising debt and bank calls. On settlement, you are free from this concern, and you may concentrate on better financial status again.

What are the disadvantages (Cons) of doing a Credit Card Settlement?

Let us know in detail what the disadvantages of doing a Credit Card Settlement are.

• The biggest disadvantage of Credit Card Settlement is that it spoils your CIBIL score. When you settle with the bank and pay a lesser amount instead of paying the entire dues, the bank reports it in “Settled” status. This status can remain in your credit report for up to 7 years, which may make it difficult to get a loan or a new credit card in the future.

• If you have done a Credit Card Settlement once, banks and other financial institutions may consider you a “high-risk customer”. This may cause problems in getting a home loan, personal loan, or business loan, or the bank may give you a loan at a higher interest rate.

• In some cases, when you go to take a loan from another bank in the future, the bank may ask you to repay the entire previous settlement amount after looking at your credit history. That is, if you had settled by paying Rs 50,000 on an outstanding amount of Rs 1 lakh, then the new bank can demand the remaining Rs 50,000 from you.

• If you have settled a credit card with a bank, then the same bank can refuse to issue you a credit card again in the future.

• Doing a credit card settlement can spoil your relationship with the bank. The bank sees it as if you have not fulfilled your financial responsibilities completely, due to which you may face problems in banking services in the future.

Conclusion

The use of credit cards has become a common need of people in today’s time. It not only fulfills our daily financial needs, but also proves to be helpful in times of emergency. But when we do not use it wisely and are unable to pay on time, then the matter reaches Credit Card Settlement. In such a situation, many people are afraid of whether they will ever be able to get a credit card again or not.

In today’s article, we have learned in detail that even after a Credit Card Settlement, a credit card can be obtained again, but it is not easy. You must make a sustained effort to bring about improvement in your credit record. Initially, you must make an effort to bring down your CIBIL score. To this end, you must make EMI or bill payments at the right time, refrain from creating any fresh default situation, and advance towards money planning.

For those who want to strengthen their credit profile again, a secured credit card can prove to be a good option. This is given by the bank based on a fixed deposit and helps to rebuild your creditworthiness over time. Apart from this, some banks and financial companies also give a second chance to such customers who have learned from past mistakes and are now managing their finances responsibly.

Frequently Asked Questions (FAQ’s)