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Impact of late payment on your Cibil credit score

Monday, December 30, 2013 by Abhishek Agarwal

cs142n42"Non-payment or serial delays in repayment of credit card dues negatively impact the credit score," said Sridhar K, Vice-president and head - business development, High Mark Credit Information Services Private Limitedin an earlier emailed response to creditvidya.com.

So how bad is the impact of a late payment on your credit score? Your credit score is made up of host of different credit characteristics and your repayment history contributes the most to your credit score. So, the answer is "it depends". The irony of the situation is however though the better credit you have, the worse the impact is of a single missed payment on your Cibil credit score. Pundits in the credit bureau industry estimate that a single missed payment can lower your score down by as much as 80 points.

There are three major factors that impact your credit score when it comes to missing payments -

  • How long ago or how recently did you miss a payment? A recently missed payment has a much worse impact on your Cibil credit score.
  • The severity of missed payment -did you miss your payment by 1 day or by 30 days or by 90 days?  Higher the severity, worse is the impact on your Cibil credit score.
  • How many times did you miss your payments in past and in how many accounts you were late in making payments? Higher the frequency of late payments, worse is the impact on your Cibil credit score.

Recency and severity of missed payment are two of the major factors that impact your Cibil credit score. The advice to any new home loan borrowers is to go check your Cibil credit report and make sure that you have made payments on time for at least 9-12 months in advance before taking a loan. This would significantly increase your Cibil credit score and give you borrowing power to negotiate for attractive rates in the market.

To sum up late payments can hurt you in the following ways -

  1. Late fee:You will be charged a late fee and it will be a ridiculous amount. If you miss your next payment, you will be charged again and will keep adding to total amount you need to pay your lender.
  2. Will not make you "loan attractive":Lenders hate to see late payments on your credit report. Who wouldn't? If you have a history of late payment, lenders will find you a high-risk customer. Hence all the loans offered to you would be at higher rate. It is important to understand that India is moving towards risk-based lending. In simple words, it means that higher your credit score lower your interest rates will be.
  3. Will show up on your Cibil credit score: Every lender updates credit information of every customer with Cibil. A late payment will reflect in your credit history for years. To ensure that late payment doesn't show in credit score, make your payments on time.
  4. Impact credit score: Eventually, every recorded late payment will pull down your Cibil credit score and make you less attractive for loans.

Image Source: DailyFinance

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