An important aspect of applying for a loan is understanding how credit reports work and how they affect the borrowing process. Loan applications involve a thorough background check of your borrowing and repayment history through the credit report. A credit report is a crucial tool for lenders to gauge your creditworthiness.
One critical detail in the credit report is the Lender Settled Status (LSS), which shows that the borrower has settled the loan for a lower amount after negotiating with the lender.
It’s important to understand the effects of LSS on creditworthiness when you come across it in a CIBIL report. Although settling off a loan can relieve financial strain right away, it has a long-term effect on your credit report.
In this article, we will explore everything you need to know about LSS in your CIBIL report and why it is important.
What is LSS (Lender Settles Status)?
In a CIBIL report, LSS stands for “Lender Settled Status.” It indicates that the borrower has settled a debt with the lender by paying an amount less than the total outstanding balance. This usually occurs when the borrower is unable to repay the full loan due to financial difficulties or disputes and negotiates with the lender to close the account by paying a reduced amount.
While this may resolve the immediate debt issue, an LSS remark can negatively impact the borrower’s credit score and future borrowing prospects, as it shows a partial settlement rather than full repayment.
Why is LSS in the CIBIL Report Important?
LSS (Lender Settled Status) can significantly affect your creditworthiness. Its importance lies in two key areas:
1. Impact on credit score
A loan repayment default (LSS) is a negative mark on your credit report that shows that you did not fully repay a loan. The paid amount, settlement duration, and overall credit history are some of the elements that determine how much of an influence it will have on your credit score. However, regardless of these factors, an LSS remark generally lowers your score, making it harder to obtain loans or secure favourable terms in the future.
2. Long-term implications
An LSS remark stays on your CIBIL report for seven years, affecting your ability to access credit over the long term. During this period, lenders may hesitate to approve your loan applications, limiting your financial flexibility.
For example, If you plan to apply for a home loan two years after settling a previous debt, the LSS remark could still lower your chances of approval, even if your finances have improved.
Factors to Consider after Getting an LSS Remark
1. Review your CIBIL report
Carefully review your CIBIL report to check the details of the LSS remark, such as the settled amount, date, and lender. This will clarify the settlement’s record-keeping process and how it affects your credit report.
2. Check your settlement agreement
Make sure that you understand all of the terms of your settlement, including any conditions or a plan for repayment. Verify if the arrangement is manageable and functions to your benefit.
3. Maintain timely payments
Continue making on-time payments on your other credit accounts to demonstrate responsible borrowing behaviour. This helps improve your credit profile despite the LSS mark.
4. Reduce overall debt
Reduce your current debts to raise your debt-to-income ratio, which is an important component of your credit score. Reducing your debt burden demonstrates good financial management.
5. Be patient
The LSS remark will remain on your report for seven years, after which it will be deleted automatically. To improve your credit profile, work on maintaining good financial habits.
6. Communicate with your lender
Discuss your financial circumstances with your lender. This can sometimes lead to more favourable terms for repayment or lower interest rates.
How Loan Settled Status (LSS) is Calculated
The Loan Settled Status (LSS) in a CIBIL report is calculated based on the settlement agreement between the borrower and the lender. LSS denotes that the borrower, typically as a result of financial difficulties, has arranged to settle the loan for less than the entire outstanding amount. For it to reflect the partial repayment, the lender updates this status in the borrower’s CIBIL record.
An LSS has a major effect on a borrower’s credit score. A loan’s credit score is lowered when it is settled since the lender reports the debt to CIBIL as “settled.” The severity of this drop depends on various factors, such as the outstanding amount before settlement, the amount paid to settle the loan, and the borrower’s overall credit history.
For example, a borrower with a high credit score who settles a large loan for less than the full amount may experience a more significant drop in their score. This can affect future loan applications, leading to higher interest rates or difficulty in securing new loans.
To mitigate these effects, you should regularly monitor your credit reports and maintain a good repayment history to improve your credit standing gradually after an LSS remark.
To sum up
Understanding the significance of Lender Settled Status (LSS) in a CIBIL report is essential for anyone navigating the financial landscape. Being informed about LSS equips borrowers with the knowledge to manage their financial health effectively. By regularly reviewing your CIBIL report, understanding settlement agreements, and maintaining a strong payment history on other credit accounts, you can mitigate the adverse effects of an LSS remark.
If you want to explore borrowing options, turn to Tata Capital for competitive loans. Tata Capital offers reasonable interest rates, large loan amounts, and flexible repayment tenure to give you the financial support you need to reach your goals. Check your credit score by visiting the Tata Capital website.
27 November 2024
5 mins read
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