Personal loan closure: How long does it take for your credit score to improve?

Paying the final equated monthly instalment (EMI) on a personal loan does not guarantee an immediate improvement in the borrower’s CIBIL score. The lender must first report the loan closure to the credit bureau, after which the updated information is processed and reflected in the credit report.

Under Reserve Bank of India (RBI) rules, credit institutions are required to update credit information every fortnight from January 1, 2025. However, the time taken for the revised information to appear in an individual’s credit report can vary.

Moreover, closing a loan is only one of several factors that influence a credit score. According to TransUnion CIBIL, payment history, credit utilisation, the age of credit accounts and recent credit enquiries also affect an individual’s credit profile. Consequently, a borrower may see no immediate change in the score even after repaying a personal loan in full.

How long does a credit score update take?

After making the final payment, borrowers should check whether the lender has reported the account as closed and updated the outstanding balance to zero.

Credit bureau updates are not necessarily reflected in the consumer’s report immediately after the payment. According to CIBIL’s consumer guidance, recent payment updates may take around 15 to 30 days to appear, depending on the reporting and processing cycle.

For instance, a borrower who repays a personal loan on October 5 may still see the earlier account status when checking the credit report a few days later.

Borrowers should also distinguish between an account marked as ‘closed’ and one reported as ‘settled’. A fully repaid loan should be reported accurately, in accordance with the repayment arrangement. An incorrect status could affect how lenders ***ess a future credit application.

Why may the CIBIL score remain unchanged?

A personal loan is an unsecured credit facility. Repaying it reduces the borrower’s outstanding debt, but the resulting effect on the credit score depends on the overall credit profile.

Consider a borrower who has a personal loan, two credit cards and a home loan. Closing the personal loan removes one active credit account, but the utilisation of the credit cards, repayment history and other outstanding obligations continue to influence the credit profile.

The age of credit accounts and recent applications for credit also remain relevant. As a result, one borrower may experience a modest improvement, another may see no immediate movement, while a third may notice a change after updated information is processed.

Should you take another loan to improve your score?

Borrowers should not ***ume that keeping an active loan is necessary to maintain a healthy credit score. Taking another personal loan solely to improve the score could create an unnecessary repayment obligation and trigger a fresh credit enquiry.

CIBIL recommends paying dues on time, maintaining control over credit utilisation and avoiding multiple credit applications within a short period.

What should borrowers do if the score does not improve?

If the score remains unchanged after loan closure, borrowers should first review their credit reports rather than apply for fresh credit.

Check the account status, outstanding balance, payment history and date of the latest update. If the loan continues to show an incorrect balance or status after a reasonable reporting period, contact the lender and request a correction.

A dispute can also be raised with CIBIL if the information reported is inaccurate. However, the bureau cannot independently alter account information without the required confirmation from the concerned credit institution.

Ultimately, closing a personal loan reduces outstanding debt, but a credit score reflects a borrower’s broader credit history. Allow sufficient time for the reporting process, verify that the account has been updated correctly and continue meeting other credit obligations on schedule.