Written-Off Meaning and Status

There are various terms and components present in a CIBIL report and it is important to understand each one of them to accurately read it. One such term present on the CIBIL report is ‘Written-Off’ and it negatively affects your CIBIL score. Read on to know what it means and how it can be cleared off.

What Does ‘Written-off’ on CIBIL Report Mean?

When you take out loans or use a credit card and do not pay back, typically after a period of 180 days, your credit report / CIBIL report shows a written-off status. Then the lender writes off the amount owed to them as a write-off or write-down the outstanding balance as a loss in their financial books - hence, written off.

This term is bad for your CIBIL score and it indicates that you cannot be trusted with money in future. However, you can get this off your CIBIL report.

Why do Lenders Write-Off an Account

Since lenders may have tried multiple reminders and calls or collection contacts for agency recovery and have made little or no effect on the matter, lenders often decide to write off the amount for their accounting treatment and once and for all regulatory treatment.

The write-off does not eliminate the borrower's responsibility to pay, and the lender is still entitled to collect. In many cases, lenders will sell the write-off balance to collectors, and their efforts will intensify, so the lender can remain compliant with regulatory treatment on a borrower's unpaid and unsecured by lender balance.

What Does it mean to Your Credit Report

When the lender has done a thorough evaluation, they writes-off the balance, the lender would then report it to credit bureaus, including CIBIL. Once reported and when available to loan officers and lenders in their evaluation of a consumer's creditworthiness. It will indicate on a consumer credit background that the consumer has been a credit risk. That they have had a history of not paying off the loan or obligation.

A written-off status or treatment is a big deal in terms of indicating a negative event for being a borrower, and it will follow you on your credit profile for a significant period of time. A written off status implies you were in financial or situational distress and may have ruined your credit reputation. It will be harder to access new credit in the future if you are not diligent in your finances and stay fiscally responsible in the future.

Types of Written Off Statuses in Credit Reports

Lenders and credit bureaus breakdown written off accounts into two types. It is important to understand the difference, as each type will impact your credit score / CIBIL score in different ways:

  1. Written Off (Total)
    1. This means that the total amount of the money owed, including both the principal and the interest, was written off. It generally occurs when the loan has not been paid back for a long duration, at which time the lender has declared the full amount unrecoverable.
    2. It is looked at by lenders quite negatively, as it shows complete default, and a lengthy payment history of default. This usually results in a larger reduction in your credit score / CIBIL score and stays on the public record for years to come, affecting any upcoming borrowing opportunities.
  1. Written Off (Principal)
    1. In this case, only the principal amount of the loan has been written off, meaning that while the principal was paid off, the interest portion might have previously been paid. This sometimes occurs when the lender receives partial payments, but not enough to pay off principal. 
    2. This designation shows serious financial irresponsibility but is slightly better than a total write off. This designation will also impact your creditworthiness, decrease your credit score / CIBIL score, and limit your sheep borrowing options.

Note: Though both types of written off status will negatively affect your credit health, a total written off will usually be considered a larger detriment to your future credit opportunities. Either way, both situations will severely affect your financial position and the plan to turn around your credit position should be strategised and implemented.

Consequences of a Written-Off Status on Your Credit Report

Having a written-off status has a major long-term effect on the credibility of your finances. Having a written-off recording and status may mean that your credit / CIBIL score is drastically lower, often below 550, which is categorized as poor. Obtaining new loans/credit cards with this low score is extremely difficult.

Written-off accounts are viewed as being ‘high risk’ for repayment by all lenders. This will affect your eligibility for loans, interest rates or credit limits. This remark will remain on your credit report for up to 7 years and it continues to affect lenders' decisions after your repayment behavior has improved.

Here’s the different ranges rated by CIBIL score and their effect on obtaining loans:

CIBIL Score Range

Loan Approval Chances

750–900

High

650–749

Moderate

550–649

Low

Below 550 (with written-off status)

Very Low

A written-off status is indicative of financial hardship; it will lower your credit score / CIBIL score and lower your chances at acquiring loans with favorable terms. It is best to deal with this as early and strategically as possible in order to rebuild your credit health.

Procedure to Remove a 'Written-Off' Status from CIBIL

Steps below on How to Remove/Clear Written-off Status on Credit/CIBIL Report:   

  1. Contact the Lender: Firstly, contact the lender who reported your written-off account, explaining that you would like a detailed statement of the total dues outstanding, which can be made up of the principal amount, interest, and penalties. Getting the amount correct at this stage can help ensure you do not end up overpaying the lender and to highlight any potential areas of concern. 
  1. Discuss Terms of Payment: You should discuss the terms of payment, whether this means paying the full amount or agreeing to a lower settlement payment. You will find that this is a preferable option most of the time. You must ensure that this is documented in writing by the lender, including the amount you will be paying back, the schedule to pay back the debt, and document that the lender updates CIBIL once the debt is settled. 
  1. Pay and Request Proof: Once you have completed or settled your payment, request a No Dues Certificate or proof from the lender. A No Dues Certificate is proof that you do not withhold any dues to the lender and is also a key component in your CIBIL update. 
  1. Request Lender to Pay CIBIL: Request that the lender loads your No Dues Certificate to CIBIL, as CIBIL cannot update any information without the lender’s contractual obligations. Keep following the lender until the lender updates your account status on your report to 'Settled' or 'Closed.' 
  1. Dispute if Required: If you don’t see an update in CIBIL, raise a dispute from your myCIBIL account, attach supporting documents (such as the No Dues Certificate), to ensure accurate reporting.

What Is Loan Settlement?

When a borrower finds it impossible to repay the remaining loan because of various life events, be it loss of job, hospitalization, unexpected personal emergency, etc., he or she will reach out to the lender to ask for some changes to the terms of the loan repayments.

  1. Partially Pay

If the lender agrees, both sides will sign a settlement. The borrower pays a lesser amount, and lender agrees to keep the loan a loan, that is, the lender will stop collection on loan for the remainder amount after the borrower pay. The borrower can then close the loan out without having paid the full amount and in some cases, it could ease the strain, however, there are implications for your credit rating.

  1. Reporting To Credit Bureau

After receiving settlement amount the lender would report account status to credit bureau, such as CIBIL as 'settled.' The credit rating agency will report status indicating that the loan was not a full repayment of the original loan.

  1. Credit Report Impacts

The 'settled' status will be present on your credit report, or equivalent for CIBIL, indicating that the loan is settled and not a full repayment of original loan terms. In not being a ‘closed’ repayment, it has the potential to cause problems for future lenders when they check your credit report.

  1. Alternatives to Loan Settlement

Before you get to the settlement stage of the loan process. You have options, loan restructure, longer payment terms for repayment to increase monthly payments or moratoriums, all aim at resolving financial struggles without damaging your credit score, or CIBIL score.

How Does a ‘Settled’ Status Affect Your Credit Score or CIBIL Score?

 Your credit or CIBIL score is affected by the ‘Settled’ status. Here is how:

  1. Adverse Effect on Creditworthiness: A ‘Settled’ status indicates to lenders and credit bureaus that a borrower did not fully comply with a credit agreement. As a result, this indicates a reduced credit score or CIBIL score, demonstrating a greater risk to lending.
  1. Long-Term Presence on Reports: The settled notation remains on your credit report or CIBIL report for as long as seven years. Lenders will continue to see this notation whenever they assess applying for credit, even if you have subsequently improved your repayment behavior.
  1. Reduced Loan Eligibility: If you have a record of settlement, lenders may be slow to approve new credit for you. If they do approve new credit, it is usually at higher interest rates with stricter conditions, or lower credit limits.
  1. Lower Credit Score: Depending on the repayment history and amount owed, the credit score or CIBIL score may dip significantly after the settlement. This will limit your ability to apply for future borrowing.
  1. Difficulties with Borrowing in the Future: Settled status induces lenders to mark increased risk, particularly concerning large loans such as home or business loans. Even if the score improves over time, there is still an element of risk with the pending ‘Settled’ status.
  1. Settling only as a Final Resort: Faced with loan defaults, borrowers should consider paying off the entire amount, restructuring the loan, or seeking lower EMIs. All of these options are beneficial in protecting a healthy credit profile and avoiding long-term repercussions.

How to Re-establish Your Credit Score or CIBIL Score Post Settlement

Re-establishing your credit score or CIBIL score after settling a loan is not instant - it takes time and planful action to resolve. Follow the steps below to accomplish this: 

  1. Pay All Outstandings: If your settlement was partial, pay your outstanding amount. Obtain a ‘No Dues Certificate’ from your lender to verify that your account is closed; this will prevent negative reporting from occurring post settlement. 
  1. Check Your Credit Report: Download your most recent credit report or CIBIL report and check the status of the settled account. The account status should show settled or closed. If it doesn't you may file a dispute with the credit bureau and provide the ‘No Dues Certificate’ to support your request. 
  1. Request Lender Updates: CIBIL and any credit bureau relies on lenders to provide accurate data. If your lender did not report to CIBIL any settled status, you can contact the lender and request a report to timely update settlement status on your credit report.  
  1. Re-establish with Positive Credit Usage: Take a small personal loan or use a secured credit card and timely pay down this obligation or line of credit. Timely payments will help re-establish creditors trust in you as a borrower and improve your credit score or CIBIL score. 
  1. Establish Good Credit Practices: Keep your credit utilization under 30%. Ensure healthy ratios of secured and unsecured credit balances; and avoid applying for multiple loans at the same time. If you follow these rules, your score will go up. 
  1. Give Yourself Time and Be Disciplined: These changes generally take 6-12 months of good financial behavior to create visible change. The collections account will affect your credit score for up to seven years, but if you have a perfect new credit history the impact will be minimal.

List of Possible Errors on CIBIL Report:

A CIBIL report may contain one of the below-mentioned errors:

  1. Incorrect personal details: Wrong personal details are one of the common errors present in the CIBIL report. Do check your personal details mentioned in your CIBIL report.
  2. Wrong balance details: There are high chances that outstanding balance is not updated on your CIBIL report. Do check this value when reading your CIBIL report.
  3. Duplicate accounts: This is one common error present on your CIBIL report. You may have multiple accounts in your name, and it is important that you inform the CIBIL authorities about it. This would ensure that there are no duplicate accounts, and it won’t bring down your CIBIL score.
  4. Delay in updating balance: You may have cleared your dues, but it may not be updated on your CIBIL report. Check the balance when reading CIBIL report.

Tips on Avoiding a ‘Written-Off’ Account 

 Here are a few tips on how avoid getting written-off status: 

  1. Make Payments on Time

One of the best ways to avoid a written-off status on your account, is to make sure all your loan EMIs, credit card payments, and other borrower obligations are paid on time. Any missed or late payment , adds up and can result in a notice of default. An account in default can result in the lender eventually writing off the account. If you make payments consistently and on time, you are demonstrating power and control of your finances and have helped maintain a good credit history.

  1. Communicate With Lenders

If it becomes challenging to make a payment, because of situations you may find yourself in, you should initiate communication with the lender. Communication can be enlightening to the lender as they are not surprised, they have a clear understanding of your circumstances, and may be able to provide options such as a temporary deferment or modified repayment plan. Communications that are clear, and well documented, enhance credibility as a borrower.

  1. Ask for a Loan Restructuring or Moratoriums

Many lenders provide loan restructurings, moratoriums, or adjustment or amendments to payment schedules to borrowers who find themselves in a financial burden. This would allow you to settle default notifications, thereby maintaining your repayment status.

  1. Be proactive

Overall, having a good handle on your finances, paying on time or consistently paying borrower obligations will go a long way to preventing borrowers' status that may be written off. Proactivity is key to saving your credit score and preserving a healthy financial future.

How Can I Raise a Complaint with CIBIL?

You can raise a complaint with CIBIL by following the steps mentioned below:

  • Visit CIBIL’s official website and make an account. Sign in.
  • Choose a type of dispute and select ‘Dispute Centre’.
  • Select ‘Dispute an item’ and enter all the details in dispute form.
  • Select the relevant section and choose the type of dispute.
  • Press ‘Submit’.

Once you have completed the process, your request will be verified by TransUnion and its status will be updated in a month’s time.

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FAQs Written-Off Staus

  • What does 'Written-Off' mean on my Credit report?

    A 'Written-Off' status means that the lender has identified the loan as uncollectable, after they have put forth every effort possible to collect the amount due. The 'Written-Off' status can hurt your credit score and will remain on your report for up to 7 years.

  • What impact does a 'Written-Off' status have on my Credit score?

    This status can have a drastic impact on your credit score and make it very difficult for you to borrow more money in the future.

  • Can I remove this 'Written-Off' status from my CIBIL report?

    Yes, after you settle the remaining amount with the lender and ask for a 'No Dues Certificate', you can ask the lender to update the loan status. After the lender has done that, you can dispute with CIBIL yourself.

  • When will CIBIL update the status?

    CIBIL usually updates the status whenever the lender has uploaded the case to CIBIL, which should generally happen within 30 days.

  • Can CIBIL change the 'Written-Off' case without consent from the lender?

    No, CIBIL cannot make changes without consent from lenders. The lender must go through the process of uploading the status for CIBIL to go based on that.

  • What if the lender refuses to update it?

    If the lender refuses to cooperate, you can take it to the Banking Ombudsman or an attorney. 

  • Is it the same process if I want to remove a 'Settled' status?

    Yes, the same way, you will have to pay the appropriate dues owed. Once settling with the lender, obtain a NO DUES CERTIFICATE from the lender, then ask the lender if they would be willing to change the case to a 'closed' status, and then you can dispute it through CIBIL.

  • How do I prevent having a 'written off' status?

    Make timely payments, if you are in need of financial help be proactive in communication with lenders regarding your situation and do not default.

  • What if I can't pay the full balance?

    Try negotiating with the lender for a very reduced amount for the settlement agreed upon with the lender; however, ask to obtain a no dues certificate once the settlement payment has been made. Ask the lender for an updated query response from CIBIL regarding the account and obtain said documents.

Disclaimer
Display of any trademarks, tradenames, logos and other subject matters of intellectual property belong to their respective intellectual property owners. Display of such IP along with the related product information does not imply BankBazaar's partnership with the owner of the Intellectual Property or issuer/manufacturer of such products.