Have you ever missed clearing your bill on time, realising only on the last day that you need to make the payment for your card? You are not alone. Hectic lifestyles and lack of organisation can lead to such misses. It’s time to do something about it as late payments are not to be ignored.
They can strain your finances, and more importantly, affect your credit score in a negative way. This can impact your ability to get quick financing at pocket-friendly rates tomorrow, and who wants that? If you are a low CIBIL score credit card user, this is especially important. You should make extra efforts to eliminate late payments from your record. This will help you reduce further negative impact on your scores.
Effect of Late Payments on Credit History
Paying after the due date can have several detrimental effects on your credit score and future ability to get credit. This score is like your credit report card, which shows how good you are at handling borrowed money, like loans and credit cards. The score ranges from 300 to 900. Here are some of the impacts of paying late:
Decrease in Score: Your credit score is reviewed when you apply for a new loan or card. In case there are late payments beyond the 30-day record, you will face difficulty with getting an instant loan or credit as your score will fall.
Difficulty in Securing Loans: A prolonged history of late payments can make it challenging for future credit. Even if you get a credit card or secured loan, you may pay high interest on it. That is not good for your financial health.
Limited Access to Cards: Premium credit cards with better rewards are available to those with a good credit score, whereas a low CIBIL score makes these options unavailable.
Low Credit Limit: Some credit card companies may reduce your credit limit after a late payment, especially if you already have a low CIBIL score. This reduction can increase your utilisation ratio, further lowering your CIBIL score.
Increased Interest: Credit card companies may hike the interest rates on your outstanding balance after a late payment. For someone with a low CIBIL score, this means paying even more in interest, which can create a cycle of debt that’s hard to escape.
Late Fees: Most credit card issuers charge a late payment fee when you miss the due date. These fees can range from a few hundred rupees to a significant amount, adding to your financial burden.
Here is an easy analysis of how late payments impact CIBIL scores:
- 7-day delay: Minimal impact
- Less than 30 days delay: Drop of 50-100 points
- 30 days delay: Decline of 90-110 points
- 60-day delay: Drop of 130-150 points
- 90-day delay: Severe drop can be noticed
- Beyond 120 days delay: Long-term consequences
Avoiding Late Payments
Missed a payment? Don’t worry! You still have time to recover from a hit. Take a look at some things you can do.
- Pay ASAP: Unfortunate circumstances are inevitable but try to be on your toes to make the payment within a month. This will have less impact on your score and might not even be reported.
- Set Up Automatic Payments: Nowadays, credit card providers issue credit card apps to monitor and send notifications to you so that no due date will be missed. You can also set up auto pay to ensure your payment record remains free of blemishes.
- Bring Down Debts: In a financial crunch? Don’t waste a minute in getting rid of debt. Pay off high-interest debt first by using your savings or taking a debt consolidation loan. Try to not use your card until you do so.
- Monitor Your Credit Report: Check your credit report regularly to notice any errors or disputes. It is a healthy habit to ensure that your score is now low due to fraud or a missed record of a closed credit account that is still showing as open.
Financial hardships are inevitabl, but taking proactive measures can help you. Credit accounts and credit cards are a huge responsibility to handle. By being more responsible with bill payments, you can improve your financial wellness. The right card can make this easy.
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