How do Late Payments Affect Your Credit Score?

If making a late payment and missing bill payments are your regular drills, it’s time to change your habit. Even a single missed payment can affect your credit score negatively, which will eventually be a problem when you wish to avail of a loan. Does paying minimum due affect CIBIL scores? Or how can late payments affect your CIBIL? Read this blog to know how missing a single payment may affect your credit score.

What is Late Payment?

Once you have missed a payment on one of your bills, EMIs or loan payments, the lender will add an additional fee to the outstanding balance. This fee is called a late fee or late payment. Late payment encourages customers to make timely payments and is defined in the agreement or contract. In case of any changes to late fees, the lender must notify the borrower.

How can a Missed Payment Affect CIBIL Score?

Once you have missed a complete billing cycle, you will get a notation on your credit report that the payment is late by 30 days. If you miss another cycle, the notation on the report will state that payment is 60 days late, and so on.

Your present credit profile will determine the damage of late payments on your credit scores. Usually, the higher your cibil scores are, the more they can drop after a late payment appears on your credit report. On the other hand, if your credit score is already weaker, late payments would still have an impact, but that won’t be so dramatic. The further you fall on your payments, your CIBIL scores will have a dramatic impact.

For instance, as compared to a single 30-day late payment, an account with 60, 90, and 120 days past due is viewed as a more negative one. Moreover, the effect of late payments on your CIBIL score reduces over time. Seven years later, the history of late fees will be withdrawn from your credit report and won’t affect your scores.

In another case, if late payments result in an account being closed, probably when the lender charges off the account or sends the account to collections, the entire account and all other associated negative marks will be erased seven years once you have made the first payment.

How to Avoid Late Payment?

Nobody likes to pay late payments, but they somehow miss payments or clear dues on time. If you are one of them and want to avoid late payments, you can employ the following practical tactics:

Set Due Dates to Your Calendar or Add a Reminder

Counting on the due dates or taking note of the same for all your credits, EMIs, and bills may assist you to stay on the path every month. This way, you will be reminded of payment dates every time you view your calendar. Or you can also set a reminder on your phone so that you don’t miss out on the due dates. Not only will you avoid late payments, but you will also save your credit score from dropping.

Manage Your Account on a Routine Basis

Fix a specified time or day to monitor your bills. For instance, you may pick Saturday morning to fetch all the statements and settle what needs to be paid. Making this a weekly routine will save you from the struggle of late payments or bills piling up.

Pick the Right Account Manager

If you can’t pay your bills on time, ask somebody or your partner to pay them on your behalf. You can also get an account manager, but you must ensure that you have hired the right person. The account manager made responsible for paying bills must have good organisational skills. However, you must stay in the loop, keep checking your account periodically, and ensure you aren’t overspending.

Set Automatic Payments

Nearly, every bank and credit union provide you with a facility for setting up an automatic bill payment. The system lets you choose the payment amount you wish to get debited on a specified date. The preferred amount will be automatically deducted from your bank account every month of the desired date and submitted to the creditor within the stipulated time. The system is more suitable for loans as the payment amount is fixed. It can also be an immaculate solution for credit cards.

Set Alerts and Reminders

You can request your lender or bank to send you reminders over your registered phone number and emails to remind you of upcoming due dates. Such incoming messages will not let you miss the payments. Alternatively, you can also set up reminders on your calendar, phone, or computer for times when you are usually free and handle your bill-paying right then.

How to Improve CIBIL Score?

Maintaining your CIBIL of up to at least 750 is crucial in case you wish to avail of any kind of loan or credit. In case you have a weak credit score, you can improve it by following the steps below:

• Don’t avail too many loans in a single year.
• Maintain your income-to-debt ratio.
• Pay your credit card bills and EMIs before or within the stipulated time.
• Keep a balance between unsecured and secured loans.
• Try to clear your dues on time ad settle credit dues in full monthly instead of paying the minimum due.
• Don’t max out your spending limits on your credit cards every month. Spend within the credit card limits.
• If you experience any financial difficulties with your creditor, you must maintain an open line of communication and negotiate repayment terms.

Conclusion

If you have a habit of missing out on credit card bills, EMIs, or loan payments, your credit score will surely drop. And, if your score is already low and you seek a loan, then you must want to improve your credit score. There are multiple ways you can maintain your CIBIL score, and paying your dues on time is one of them. You can set a reminder or ask your lender to remind you of the same by sending a text message or email updating you on the due dates. This way, you will always be able to pay your dues on time and avoid missing any payments.