A credit score plays a crucial role when it comes to placing a credit application. The higher your credit score, the better your chances of availing of credit approval. With a low credit score, availing approval as per your required time is impossible. Even if your loan gets approved, the applicant may lose out on the benefits like the power to negotiate on the credit amount at a lower rate of interest. There are different parameters that affect your credit score like outstanding proceeds, debt, half settled payment, delayed or missed payment etc. Here in this blog, learn how missed payments may be a major reason for low credit scores.
How does missed payment impact your credit score?
Any delayed or missed payment has a long-term negative impact on your credit score and might impact your credibility. Moreover, having a low credit score may result in loan or credit card application rejection. In other words, to maintain a strong credit score, it is necessary for you to make payments on time and adhere to all the credit score linked best practices.
This further can be explained in the listed way:
∙ Severity and impact of missed payment are extremely high, which encourages applicants to work extremely hard for at least months to regain a strong credit score.
∙ Payment defaults are categorized into 2 kinds – major and minor. These further can be explained as follows:
✔ Minor payment defaults happen when the applicant delays or misses a payment for less than ninety days. Such kinds of defaults are considered minor because lenders and banks believe they quickly can be resolved. However, the CIBIL score is impacted temporarily.
✔ Major payment defaults happen when the applicant pays the credit amount but after the 90 days window. On such an occasion, the CIBIL score suffers extremely, and the applicant is looked upon as a risky individual. Moreover, major defaults in payment and low credit scores both hinder your credit card or loan approval.
Thus, it is recommended that both minor and major payment defaults are addressed and cleared at the earliest.
How can you improve your CIBIL score?
Any kind of payment default has an adverse impact on your credit score. Having a low credit score also makes it tough for you to get approvals for credit cards or loans. Listed here are how you can ameliorate your credit score:
∙ Ensure to be disciplined with your credit repayment history
∙ Maintain a CUR (credit utilization ratio) of 30 percent or less
∙ Avoid making multiple hard inquiries and credit card inquiries
∙ Keep your old credit card accounts open
∙ Assess your score twice every year
∙ Resolve late payment issues as early as possible
How can you avoid late payments?
There are several ways you can avoid late payment charges; however, it is the applicant’s responsibility to adopt the below-listed practices –
∙ Choose an automatic debit option. The feature lowers a specific credit amount from your bank account every month.
∙ Next, ensure to set up reminders for your credit card payments
∙ Convert your outstanding dues into EMIs
What is CIBIL, and why is it necessary to keep a record of it?
Founded in the year 2000, the credit bureau of India CIBIL contains a record of your credit cards and loans. A CIBIL score is one of the crucial factors to gauge your potential to repay the loan or ascertain your credibility. There are various parameters which negatively can impact your strong score, including frequency & severity of late payment, dodging on to the question: does a single missed payment affect your credit score?
Financial discipline is majorly the key.
Often, many of you underestimate the necessity of timely repayments and thus, end up repaying the bills after the last day is over. This is not well for you regarding your financial discipline over the long term. With the advent of credit bureaus in India like CIBIL, you can easily delay your bill payments at your peril.
Effect of missed or delayed payments on your credit score
Any single missed payment can substantially lower your credit score and thus lower your credibility. Financial institutions and banks may turn down your credit application request, while credit card institutions on periodical review may reduce your credit card limit or not increase your limit. Card issuers require you to ensure that your payment records are clean before they provide you with a higher credit card limit.
Major and minor defaults
Payments that are missed or delayed for a period of below 90 days are looked upon as minor defaults. As an outcome, the CIBIL score considers the permanent beating; however, it is impacted temporarily. But if you fail to conduct payment over 90 days, your account may fall under the non-performing asset (NPA) category. In the situation of major defaults like this, bank lenders will not touch you with bargepoles; in both cases, whether minor or major defaults, credit eligibility gets impacted. In the case of minor default, you may ensure that you pay a subsequent bill in a timely manner to see the recovery of the CIBIL score.
Many think that a single delay in payment may not have a negative impact on your score, provided you compensate for the lag in time. However, all of it boils down to the frequency of missed payments and timing. A couple of missed repayments might just impact your credit score for the short term, but if you do make any missed payment and look to avail a loan, the probability of availing a loan is extremely high.
FAQs (frequently asked questions)
Is it possible that paying your due late by 1 day will impact your credit score?
Yes, a single late payment can impact your applicant’s credit score negatively, particularly if you have a good or strong credit score.
Do late credit card payments have a negative impact on your credit score?
Late payments of your loan EMIs, and credit card balances reduce your credit score, which impacts your credit card or loan application approval.
How can you file a complaint about the wrong credit score?
To complain about errors or issues in your credit report or score, ensure to file a dispute with the credit bureau of India.
How long does CIBIL or any other bureau keep close track of loan EMI or due defaulter?
Credit Bureau of India or credit rating agencies keeps your info for a minimum of 7 days from the first payment default date.