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How Do Late Payments Impact Your CIBIL Score?

How Late Payments Impact Your CIBIL Score

Importance of maintaining a healthy CIBIL score

A CIBIL score is a statistical indicator that indicates the financial performance, credibility and repayment history of an individual. Financial institutions like banks make extensive use of CIBIL scores to assess the credibility of a credit card or loan applicant. In today’s world, every banking transaction that you make leaves an electronic trail. This is especially true in the case of credit card bill payments, loan payments, personal loan application etc. CIBIL uses this data to build a financial performance narrative which is then passed onto banks to allow them to assess an applicant.

A healthy CIBIL score has multiple uses, the most important of which being a high chance of having a loan or credit card sanctioned. If your CIBIL score is above 750, most banks will process your application in a matter of days.

So if you are someone who has an active loan as well as a credit card, what should you do to maintain a healthy CIBIL score? The most important thing to do is not to default on your payments. One instance of late repayment can impact your CIBIL score and it will take years and years of strict adherence to bring it back. In the meanwhile, you will find it extremely difficult to secure another loan or a credit card. It will project the message that the individual is careless and insincere about repayments. This is only the tip of the iceberg and late payments can immensely affect your CIBIL score. Let us find out in detail below.

Impact of late payments on CIBIL score
  • The immediate casualty of a late payment is your credit score. A low credit score automatically affects your chances of securing new credit products. Banks take a particularly serious view of defaulters and often use it as a reason to reject services. Banks have an understanding where they report a default or late payment immediately to CIBIL which updates the instance in your profile. This is their way of communication the ‘risky’ behavior to other banks.
  • It is extremely difficult to reverse the effects of a late payment. Once a bank reports a default on payment to CIBIL, the same is updated on your profile and unless the bank communicates a positive report later on, the blemish stays on your profile. And considering how harsh banks are on defaulters, it might take you quite a while before they consider communicating a positive report to CIBIL.
Furthermore
  • Your credit score is built on timely repayments. This reputation can take an instant hit with just one late payment. It not only affects your future prospects of securing new credit products, it can even impact the current ones. For instance, if you pay your credit card bill late for one month, the bank may use this as an excuse to deny your ‘limit enhancement’ request later on. Therefore, you can see that the impacts of late payment are far-reaching and should be avoided at all costs.
  • Apart from affecting your credit scores, a late repayment also attracts exorbitant penalty charges. Banks intentionally keep the penalty rates very high in a bid to discourage individuals from defaulting on the payment. To make matters worse, the penalty rates keep increasing the longer it takes for you to pay the bill. Therefore, it is essential that you ensure that the credit card bills and loan EMIs are paid on time.
There Are Positives

There is a positive side to this as well. The problem occurs only when you pay your bills late or default on a payment. On the other hand, if you are regular with your monthly payments, it will leave a positive trail and undoubtedly be reflected on your credit score. Therefore, take the repayment of bills as an opportunity to enhance your CIBIL score and make all payments on time.

Jay Kaul

About Jay Kaul

Jay is a financial and credit expert and freelance contributor to CreditSmart. He’s always keeping his eyes open for the latest credit card trends in India and provides a sharp insight on new entries into the market.

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