A credit score is very important when applying for credit cards or loans as it plays an important role in determining your eligibility. This score indicates your creditworthiness, allowing the lender to determine the risk of offering you a loan.
If you pay your EMIs and bills on time, it will help increase your credit score gradually. Otherwise, a single missed payment can reduce the amount. Let us understand how late payments can affect your credit score.
Understanding delinquencies
Lenders give you a certain period within which you must repay the loan or credit card bill. If this deadline is not met, the deferred payments will be included in the CIBIL report. If a payment is missed or delayed, the credit score decreases. Please note that if you post this, it will take a significant amount of time to get your credit score back.
This is almost always seen as a negative aspect by lenders when they analyze whether you qualify for the specific loan or credit card. Many lenders consider this a high risk because it reduces the guarantee of getting the amount back on time. On the other hand, early payments give lenders confidence that you will be able to repay the loan within the specified period.
Lenders have specific criteria for the penalties for failure to repay the EMIs. For credit card bills, if you don’t pay on time, interest will be added to the balance every successive day. It is important to note that credit card interest rates are even higher than a personal loan.
Impact of late payments on your credit score
Negative impact on credit score: A single missed payment lowers the credit score and in turn limits your chances of getting a future loan or a credit card.
Credit report reflection: Late or missed payments also remain on the credit report for at least 36 months, indicating poor borrowing habits.
Small default settings: Payments that are not yet past due, i.e. payments that are less than 90 days past due. These lower your credit score, although they can improve if payments resume on time.
Important default settings: Any outstanding payment amount for a period of more than 90 days is categorized as Non-Performing Assets (NPAs). These significantly lower your credit score, it becomes difficult to get back to 750+ and your credit rating decreases.
Multiple default settings:If multiple loans exist and you fail to make timely payments in more than one EMI, your credit score will be drastically affected.
Conclusion
If you want to avoid such late fees and stay consistent with your credit score, then consistency is key. You should make sure you stay ahead of your bills and always pay credit card bills in one go instead of paying a minimum amount so you can avoid unnecessary charges.
To ensure that you have your finances in order for loans, it is advisable that you use an EMI calculator to note down your EMIs and how much burden you will bear after the loan. You must ensure that you always borrow the amount that you can repay and that you do not borrow an additional amount that could put you in debt.
Always keep in mind that credit scores can easily deteriorate, but improving them will take a lot of time and consistency. Therefore, make sure you always consider all aspects and make informed decisions.
