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Axis Bank provides a settlement offer for those credit card holders who are facing genuine financial crises. Settlement is the process of paying a smaller lump sum amount than the original amount. For example, if one has a balance of ₹2,00,000 but, due to job loss, cannot pay the full amount, in this situation, after negotiating with the bank, they can pay only ₹1,80,000. Settlement helps to reduce financial burden, but it also has some negative impact on credit profile.
key takeaways
The process of paying less than the actual outstanding amount of a credit card with the agreement of the credit card issuer is known as the credit card settlement process.
The cardholder negotiates with the issuer to pay a lump sum amount less than the Total balance. If this agreement is reached, Cardholders should keep it in written form to avoid future disputes. The cardholder then makes payment on a specific date and the issuer reports this settlement to the credit bureau. Credit bureaus highlight the status as “settled” in the report.
Settlement simply means the cardholder is not able to pay the full balance and needs some options that will reduce his/her payment amount. This may happen for many reasons, such as financial crises.
Cardholders can request an issuer for the settlement but the final decision depends on only the bank or the card issuer.
There is no fixed and universally guaranteed benchmark. Most of the time, the reduction depends on the default age, late fees, high interest, and financial crises.
Axis Bank credit card settlement can feel like relief, but it also can leave some marks on the CIBIL report. After settlement it becomes necessary to improve CIBIL score in order to obtain loans or credit in the future. To improve credit score, one can follow the steps:
Bonus tip: Axis Bank offers Insta Easy Credit Card which requires a minimum Fixed deposit of ₹20,000 and also offers upto 80% credit limit of deposit amount. This card helps you to improve your credit score.
The whole negotiation process of credit card debt settlement is governed by the RBI regulations which is applicable for Axis Bank too. Here is what RBI says about credit card settlement:
The settlement is not just an informal deal between you and the Bank. It is a regulated process.
Sometimes managing credit card debt can become difficult for a person due to various reasons like job loss or a medical emergency. In this situation, they can negotiate with the issuer and pay less than the actual balance. This strategy is known as credit card settlement. The settlement process is governed by RBI regulations, so it is legal. Although it seems like a relief but can affect a credit score. As a result, getting future loans or credit cards can become difficult. That's why you need to improve your CIBIL score after settlement.
When you settle a credit card balance, your bank simply agrees to accept a smaller lump sum amount than the original one. You pay less amount than the Total amount, after this banks do not contact you for any type of payment. That means after settlement, you are not obligated to pay more.
If you are a business owner, you can go for credit card payments. With this method, customers can pay you by using a credit card. It helps boost sales. But you have to pay some merchant discount rate (MDR) which is typically 1.5% to 3.5% per transaction.
Credit card settlement can negatively affect your credit score. After settlement, banks report to the credit bureau with the status “Settled” instead of “close” which can affect your future loans and credit.
After settlement your CIBIL score will drop, the bank will inform the settlement status to the credit bureau and your credit report will show the status “Settled”. This status remains on report for many years and lenders can consider it risk factor and avoid approving your loan. It also may affect pre-approved offers like personal loan, overdraft limit, or card upgrade.
There is only one way by which you can remove the settlement status from the credit report, that is to convert this status into “Closed” status. You need to go through the settlement to the closure conversation process. First, you need to request formal written confirmation via email that they will accept the amount and update your status to “Closed”. Then clear the remaining balance, get your No Dues Certificate (NDC).
RBI does not mention any fixed percentage of reduced amount but its master directions on compromise settlement is considered while making the settlement process. According to it, transparency is needed and customers have rights to get a written record.
The payment choice depends on the financial situation of the cardholder because they have to pay it. But in general, you should go for full payment rather than settlement. Because settlement status will be on report and it can make future borrowings difficult.
Yes, you should get an NOC after credit card settlement because it helps in future disputes. You can request it from the card issuer and they are legally bound to give you NOC.
Yes, recovery agents can visit your house, but they should strictly follow RBI rules.
