Have you ever breathed a sigh of relief after making the last payment on a loan? But, have you considered taking the crucial step of obtaining a loan closure confirmation letter from your lender? If not, allow this story to serve as a valuable lesson, underscoring the significance of verifying your loan closure and its impact on your credit score.

Recently, I encountered a new client referred by an existing client. He was puzzled about the high-interest rate offered by his bank for a home loan compared to his peers with similar age and financial standing. Seizing the opportunity, I explained the fundamentals of how banks assess a potential client’s risk profile using credit scores, ultimately influencing the interest rates provided.

To understand the situation better, we conducted a quick exercise, registering the client on CIBIL and obtaining the free yearly Credit Report. In under 10 minutes, we had detailed reports in hand.

For those who don’t know about this, you are eligible for 1 free report every year from each of the credit rating agencies. As most of the banks refer CIBIL while reviewing an individual’s credit worthiness, we are going ahead with CIBIL report. You can register yourself through the below link to gain access to the Free Credit Report.

CIBIL Score

Credit Score of 750 and above is considered good and it helps an individual in availing loans at the standard rates. Anything below this, is considered negative and calls for increased interest rates being charged by he lending organizations.

While scrutinizing the report, we discovered an overlooked bounced EMI of INR 1,200 towards a loan availed nearly a decade ago. The bank had imposed charges and accrued interest, resulting in a substantial amount balance of little over INR 25,000.

This negative incident had been reported to credit agencies, dragging the client’s CIBIL score below 650 and leading to higher interest rates from the bank. In the current situation, we advised the client to engage with the bank, discussing a resolution to this matter amicably. It is likely that the bank might propose a discounted amount for the client to settle the outstanding debt and close the loan permanently.

Failure to address this issue promptly may haunt the client indefinitely, leaving no room for improving the credit score.

Have you encountered a similar situation in the past?

Share your experiences and insights in the comments. Your feedback could help others navigate such challenges.