Closed your personal loan? Your credit score may take time to show the benefit

Clearing the last EMI on a personal loan does not mean your CIBIL score will automatically jump the next day. The lender first has to report the closure to the credit bureau, after which the updated information is processed. RBI rules require credit institutions to update credit information fortnightly from January 1, 2025, but the exact date on which a consumer sees the change can still vary. There is another reason for the wait. Closing a loan is only one piece of the credit profile. CIBIL says the score is influenced by factors including payment history, credit utilisation, age of credit and recent enquiries. The number can therefore remain unchanged even after a personal loan has been fully repaid. The lender has to report the closure first Once the final payment is made, check whether the lender has marked the account as closed rather than showing an outstanding balance. CIBIL says recent updates can take time to appear in the report, and its consumer information notes that lenders may take around 15 to 30 days for recent payment updates to reflect. So, checking the score immediately after paying the final EMI can give a misleading picture. For instance, if a borrower clears a personal loan on October 5 and checks the report a few days later, the account may still show its earlier status. The account being shown as closed is also different from a loan being reported as settled. A borrower who has paid the agreed amount in full should check the report carefully to ensure the lender has reported the correct status. Closing one loan does not control the entire score A personal loan is an unsecured form of credit. Once it is closed, the outstanding loan balance falls, but that does not mean every factor used to calculate the score changes in the same direction. For example, suppose a borrower has a personal loan, two credit cards and a home loan. Paying off the personal loan removes one active account, but the credit cards and their utilisation continue to affect the overall profile. CIBIL also considers the age of credit accounts and the number of recent credit enquiries. The effect can therefore differ from one borrower to another. One person may see a small movement, another may see no immediate change, while someone else could see a change after the bureau receives and processes updated information. Do not take a new loan just to raise the score A common mistake is to assume that maintaining an active loan is necessary for a good credit score. Taking another personal loan simply because an old one has been closed can add a fresh credit enquiry and a new repayment obligation. CIBIL recommends paying dues on time, keeping credit utilisation under control and avoiding multiple credit applications over a short period. If the score does not move after the loan is closed, the first step should be to check the credit report, not borrow again. Look at the account status, outstanding balance, payment history and date reported. Check the report if the closure is missing If the loan continues to show an incorrect balance or status after a reasonable reporting period, contact the lender and ask for the information to be corrected. CIBIL says it cannot independently change account information without confirmation from the concerned credit institution. A dispute can be raised when the information reported is incorrect. The useful thing to remember is that closing a personal loan removes an outstanding debt, but a credit score is built from the wider credit history. Give the reporting process time, check the updated report and continue paying other credit dues on schedule rather than expecting an instant score increase. Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.