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Skipping Bill Payments Can Affect Your Credit Score

A Credit Score is a numerical representation of your ability to repay the borrowed sum. It ranges between 300-900 and is a measure of your creditworthiness. The credit bureaus in the country compute your credit score by taking into consideration several factors like bill payments, credit history, and others. Therefore, it is important to focus on the factors which affect your credit score.

Here are the five factors that make your credit score:

Payment History 30%
Credit Exposure 25%
Age of the Credit 25%
Total Accounts 20%

How can Late Payments Affect my Credit Score?

As you can see in the above table, your payment history is the biggest factor that can hamper your credit score. Therefore, it is of utmost importance to make timely payments of your credit card bills as well as EMIs for loans. Late payments will immediately bring your credit score.

  • A recent CIBIL analysis revealed that a 30-day delinquency can reduce your CIBIL score by 100 points. If you delay the payment further, it will affect your score even more.
  • It must be noted that each credit bureau has its own way of calculating credit scores, therefore there is no fixed model of evaluating your credit score. A late payment can have a huge impact on a credit score from a particular credit bureau as against another credit bureau.
  • Being consistently late in paying credit card bills for a couple of months can have a huge impact on your credit score.
  • When you miss a credit card bill payment, the default remains in your credit report for 7 years. However, the impact of the late payment recedes over time
  • Late payments not only affect your credit score, but you also end up paying more money in the form of late payment fees. Your lender could also increase the interest rate on your credit which can mean you will have to pay more money.
  • Improving a credit score is not an overnight process. It requires a lot of discipline and consistency. The time needed to increase the credit score can vary from person to person and there is no definite period for it.

How to Minimise the Impact of Late Payment?

  1. Negotiate with your lender:

    In case of a late payment, you can negotiate with your lender. You can request the lender to not record the late payment and offer to settle the debt by paying the amount in full. It must be noted that there is no guarantee whether the lender will agree with your request. If you have been consistent with your payments for a long time, the lenders might consider your request.

  2. Dispute errors in your credit report:

    If there is an error in your credit report, it can bring your credit score down. In such cases, you should raise a dispute about the error with that particular credit bureau at the earliest. You can visit the credit bureau’s website and follow the steps to dispute the errors. Every consumer has a right to challenge if there are any errors in their credit report.

  3. Continue paying bills on time:

    If you have missed one payment, you should not worry about your credit report. It is advised to focus on the upcoming bill payments and pay them on time going forward. You should be careful with late payments, otherwise it will be difficult to fix your credit score in the long run.

How to Avoid Late Payments in the First Place?

  1. Consider an auto debit option:

    If you are having a hard time keeping a track of your credit card payment, you can choose the option of auto debit. You can give your bank a standing instruction to debit the credit card bill amount by a particular date to avoid late payments.

  2. Set alerts or reminders:

    Another way to be prompt in your payments is to set up text or email alerts so that you will not forget to make the payments. You can also set reminders on your phone’s calendar to be extra sure.

  3. Monitor your credit report:

    It is a good habit to check and monitor your credit report from time-to-time. Your credit report can have errors related to your credit accounts. It also helps you to keep yourself updated about your credit health. You can fix the areas where you are lacking thereby improving your credit score.

  4. Stick to a financial budget:

    It is important to have a financial budget and stick to it. You should control your impulse to shop and maintain a monthly budget. This will help you make your payments in full as well on time.

Frequently Asked Questions

  • How long will a late payment stay on my credit report?

    Record of late payments stays on your credit report from seven years post the account was reported.

  • How long will the late payment affect my credit score?

    The impact of your late payment fades eventually. However, it will hamper your credit score by around 80-100 points.

  • How to remove a late payment from my credit report?

    If you think the late payment has been reported on your credit report by error, you can dispute the same with the respective credit bureau and fix it at the earliest.

  • How will I come to know about late payments on my credit report?

    If there is a sudden fall in your credit score, you should check your credit report. Also, you can check your credit report from different bureaus to confirm the issue regarding late payments.

News About Skipping Bill Payments Can Affect Your Credit Score

  • RBI says Payments Data Should be Saved Locally

    Reserve Bank of India (RBI) said that all payments related data was to be stored within systems operated in the country. The move comes a week after the Minister of Commerce and Industry, Piyush Goyal asked companies to submit their concerns over data protection policies in India. In its frequently asked question (FAQ) section, the RBI mentioned that the entire payment data shall be stored in systems located only in India. The data should be deleted from the systems abroad and brought back to India not later than one business day or 24 hours from the payment processing, whichever is earlier, it added. The data should include end-to-end transaction details and information pertaining to payment or settlement transaction that is gathered/transmitted/processed as part of a payment message/instruction.

    The payments data could be pertaining to customer data like name, mobile number, Aadhaar number, PAN. In addition to personal information, the data will include payment-sensitive data like customer and beneficiary account details; payment credentials like OTP, PIN and, transaction data such as originating and destination system information amount, among others. As per the latest clarifications, while there is no bar on the processing of payment transactions outside India, the PSOs will have to ensure the data is stored only in India after the processing. The payment system data may be shared with an overseas regulator if required, but with the approval of RBI. Multinational payments companies like Visa, Mastercard, American Express, Amazon Pay and Google Pay are facing the heat after RBI's decision to compulsorily store payments data within India.

    28 June 2019

  • EarlySalary receives BBB stable outlook from CARE

    Lending platform EarlySalary has received a credit rating of BBB from CARE credit rating. The BBB credit rating suggests that the company has a “stable outlook”. The BBB rating is allotted after taking into consideration debt instruments of EarlySalary. Thanks to the adequate capitalization, participation from reputed private equity investors, diverse and deep experience of the top management, and robust business and operations process are some of the features that helped EarlySalary get the BBB rating. 

    EarlySalary targets salaried professionals, above 21 years of age with a monthly salary of above Rs.18,000. Millennials are the largest user base of the mobile first application and over 55% of these borrowers work for the top 200 corporates in the country. The key rating strengths of EarlySalary includes comfortable capital adequacy, participation of diverse investors, robust business, operations process, and liquidity position. EarlySalary has disbursed over 5 lakh loans worth more than 850 crores. At present, users can access the lending platform to avail loans of up to Rs.2 lakhs; a line of credit ranging from 50 days to 2 years and interest-free EMIs for shopping and travel. 

    12 March 2019

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