Impact of Late Payment on Credit Score
rimzim • July 8, 2021
CIBIL (Credit Rating and Information Bureau India Ltd) is a 3-digit dynamic number assigned to individuals and businesses and is regulated by RBI (Reserve Bank of India). Banks and financial institutions check this score to analyze loan and credit card applicants’ prospects of repayment. Complex statistical calculations are used to evaluate parameters such as credit history, debt repayments timeliness, the number of existing loans, loan application frequency and defaults, etc. Each of these factors has an important role to play in determining the Credit score. Therefore, it adversely affects the score that the due date is not met.
Late dues payment and your credit rating go hand in hand. This is a breakdown of the impact on the credit score of your late payments based on how many days you are late in paying.
What is Late Payment?
The date of due date for loans and credit cards payments is set for banks and financial institutions. The default or late payment of credit and card bills shall be recorded as delayed payment in CIBIL on the due date. With every delay in payment the score falls, but it takes much longer, even after a consistent record of due payments.
Late payments harm personal and business creditworthiness and become a barrier to future credit approvals. A person’s loan approvals with a low CIBIL score are seen as a risky offer by lenders, while a good credit score gives them some assurance that the debt is recovered.
How Late Payment Affects Your CIBIL Score?
Less Than 30 Days Late
If you miss a credit card bill or loan EMI payment by less than 30 days, it has little effect on your credit score. So, if you’ve forgotten to pay a bill, make sure you pay it within 30 days to minimize the impact on your credit score.
However, even if your bill/EMI is delayed by less than 30 days, you will face negative consequences such as:
- Fees for late payments
- Credit card interest rates are rising.
30 Days Delay
A 30-day delay will affect your credit score if it occurs frequently. If this is your first time delaying a loan EMI/credit card bill, the lender may be understanding, especially if you have previously made on-time payments. As a result, a single 30-day late payment will not affect your credit score. However, if it occurs frequently, it can cause your credit score to drop by up to 100 points, lowering your score from excellent to good, good to fair, and so on.
Delay of 60 days
A 60-day delay in your credit card bill/loan EMI can seriously harm your credit score. It appears on your credit report because most lenders report to credit bureaus every 30 days.
90-days Delay
If you have not paid an outstanding credit card bill/loan EMI for more than 90 days, it will be noted on your credit report and may be classified as a non-performing asset (NPA) (Non-Performing Asset). It should be noted that different lenders have different criteria for NPAs. Some consider a 90-day late payment to be an NPA, while others consider a 120-day delay to be an NPA.
A late payment on your credit report is likely to stay there for seven years, affecting your future loan eligibility and interest rates.
Delay of more than 120 days
The late payment is now classified as “collection” and will appear on your credit report. This has a significant impact on your credit score, causing it to fall even further.
Delay of more than 120 days
The late payment is now classified as “collection” and will appear on your credit report. This has a significant impact on your credit score, causing it to fall even further.
Steps to Avoid Late Payment
If you have a credit card or a loan, you must remember the due date and try to pay on time to avoid paying a late fee for non-payment. Here are some pointers to help you make sure you don’t fall behind on your payments.
Select the Auto-debit option:
Auto debits can be useful for those who forget to make payments by the due date. Autopay is the process of authorizing your credit card issuer or lenders to automatically deduct the outstanding amount or the minimum amount from your bank account every month. This relieves you of the burden of remembering to pay your bills on time.
Set up recurring reminders:
Another way to effectively pay your outstanding dues on time is to set up reminders rather than rely on your memory. Calendars or online reminders on your phone are the best ways to keep track of what you owe and when it is due. You can also request that your creditors send you online reminders of your payment due date.
Weekly payments:
Instead of paying monthly, it is preferable to make weekly payments on the account. You may find it easier to control your overall balances and pay everything off faster if you do so.
This will assist you in achieving an excellent credit score and will keep you from having to pay high interest rates and late fees.
Key Points to Note about Late Payments and CIBIL Scores
On-time payments account for 35% of your credit score. It is the most important factor influencing your credit score. To avoid damaging your credit score, it is strongly advised that you pay credit card bills, loan EMIs, and other bills on time.
According to a recent study, even a 30-day delay in bill payments can result in a 100-point drop in your CIBIL score. Further delays may result in a further drop in your CIBIL score.
It is important to note that different credit bureaus – CIBIL, Equifax, Experian, and High Mark – use different algorithms to calculate credit scores. As a result, the impact of a late payment will vary depending on the score. For example, it can lower your CIBIL score by 100 points, while it may lower your Equifax score by 80 points, and so on.
Frequent late payments have a greater impact on your credit score and history. The delay is documented in your report for up to seven years.
Late payments not only have an impact on your credit score, but they also force you to pay additional money to the lender in the form of late penalties, higher interest rates, and so on.
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