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​What’s The Impact of Making Late Payment on Your Credit Score?

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Credit Score

A credit score is majorly the outcome of your credit repayment behaviour and your credit history.  All these details and others are documented in a report, which involves info like your credit repayment history, number of loans borrowed, debt repayment behaviour, hard inquiries, your personal details, and others. Any issue or error, remarks, late payments or comments linked with your credit history are reflected directly in your report. However, such parameters have a bad impact on your score. To maintain a strong credit score, it is a must that all such negative parameters are addressed whenever they show up in the credit report.

Maintaining a good equation with credit availed i.e., following the credit habits as per the credit policy allows the credit rating in India like the CIBIL, Experian, CRIF Highmark and Equifax to compute a good credit score for you.  Discussed here are how one of the important factors of timely repayment if gone wrong i.e. if you make late payments on any of the credit facilities has a negative effect on your score and what measures should you take up to avoid them. 

What’s a late payment?

A late payment refers to a payment that isn’t performed by the credit’s due date. Late payment has a negative effect on your score and at times may make it extremely tough for you to opt for a credit facility in future. It is necessary to make all your repayments timely to avoid any kind of damaging impact on your score. 

What are the negative impacts of making a late payment?

Making late payments can have various negative impacts on your score as well as your potential to obtain credit in the near future. A few of the potential impacts of making late payments are – 

  • Massive damage to your score – Late payment is a very common parameter that lenders factor in when assessing your application for credit and can considerably have a negative impact on your credit score.
  • Difficulty in obtaining a credit of your preference – Having a late payment history can make it extremely tough for you as a borrower to qualify for the credit card or loan option and might lead to a higher rate of interest or fees if your application is approved. 
  • Enhanced default risk – Late payments are usually a sign of being financially unstable and may show a higher default risk to the lender reviewing your application for a loan or credit card. This may make it for you as a borrower really tough to avail a credit in times of financial exigencies in the future. 
  • Negative impact on your report – Late payments basically are reported to the bureaus that appear on your report. This may affect your potential as a borrower to obtain the credit card and can impact the rate of interest and fees that you are offered. 

How can you avoid late payments?

There are various ways through which you can avoid late payments and maintain a good and positive credit history – 

  • Go for automatic payment –

Many lenders provide the option to go for automatic payment from your savings bank account, which may assist ensure that your payments are done on time and in full without you requiring to worry about the repayments and remembering the due date every month. 

  • Use the reminder system or calendar – 

Make sure to mark the credit due dates for all your bills on the calendar as well as set up timely reminders on your mobile or mail to assist you to keep thorough track of the due payments. 

  • Keep good track of your budget –

Ensure you hold adequate money in your bank account to cover all your bills as well as adjust your spending as required to avoid missing payments and overspending. 

  • Communicate with the creditors – 

In case you are facing any trouble making the payment, ensure to connect with your creditor as early as possible to allow them to know as well as discuss the potential solutions. Most lenders are willing and make it a point to work with you to get a solution that would work for both. 

By step by step following the above-mentioned steps, you can make sure that you make the most out of your payments on time as well as avoid any kind of damaging impact on your score. 

Also Check: Credit Rating Agencies in India

So, what are the key things you must ensue for forming a good credit score? These include – 

Financial discipline majorly is the key

Very often, many underestimate the importance of making payments on time and thus, end up paying bills after the due date has passed. You must not do so while paying your loan and credit card dues as you are looked upon as irresponsible, which makes you incur not just hefty interest rates and late payment fees but also you face a reduction in your credit score, which makes you ineligible for your future credits. With the introduction of credit bureaus like CIBIL, the thought of delaying your dues on credit must enter your mind even. 

Impact of missed or delayed payment on your loan or credit card 

Any single missed or delayed payment can lower your credit score and thus lower your credibility. Financial institutions including banks and HFCs may turn down your request while credit card bureaus that periodically check your credit profile may lower your limit as well as your score. Issuers like to ensure your credit card payment records are completely clean before offering you any limit enhancement request. 

Major and minor default

Payment missed or delayed for a span of below 90 days are looked upon as minor defaults. As an outcome, the CIBIL score does take up a permanent beating but is impacted temporarily. However, in the case you fail to make the payment after 90 days, your account falls under NPA (non-performing asset) status. This is a major default from where there’s no returning back if you continue not to repay your loan for a good span of years.

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