Paid off your personal loan? Why your credit score might not jump right away
Clearing the final Equated Monthly Instalment (EMI) on a personal loan marks an important financial milestone, but borrowers should not expect their CIBIL Score to increase immediately after the loan is fully repaid.
A closed loan continues to appear on your credit report because it forms part of your credit history and records your past repayment behaviour. In some cases, closing an active instalment loan may even result in a small, temporary decline in the score, particularly for borrowers with a limited credit history or fewer active credit accounts. This can happen because closing the loan changes the overall composition of the borrower’s credit profile.
Loan closure is not just about making the final payment. Borrowers should also complete the necessary documentation and ensure that the lender updates the account correctly.
After repaying the loan, obtain and preserve the loan closure letter or No Dues Certificate issued by the lender. It is also advisable to check the credit report after allowing sufficient time for the lender to report the closure.
CIBIL says lenders generally provide account information within 30–45 days. Therefore, checking the report immediately after making the final EMI payment may still show the previous outstanding balance or an active account status.
If the loan continues to appear as active, shows an incorrect outstanding balance or is incorrectly reported as “settled” despite the borrower making full repayment, the borrower should first approach the lender for correction.
If the issue remains unresolved, a dispute can be raised with CIBIL. However, the credit bureau cannot independently alter information reported by a lender without confirmation from the concerned financial institution.
‘Closed’ and ‘Settled’ are not same
The status assigned to a loan account can have important implications for how lenders view a borrower’s credit profile.
Closed: A “closed” account generally indicates that the borrower has repaid the entire amount due and the loan has been fully discharged. The account remains part of the credit history and reflects the borrower’s repayment record.
Settled: A “settled” status indicates that the lender accepted an amount lower than the total outstanding dues to close the account. Such a status can signal greater credit risk to prospective lenders and may affect future borrowing decisions.
For this reason, borrowers who have paid the loan in full should verify that the account has been reported as “closed” rather than “settled.”
What borrowers should do after repaying the loan
A few simple steps can help ensure that the loan closure is accurately reflected in the credit report:
