How Does Missing One Payment Affect Your CIBIL Score?

The CIBIL score is calculated using information from a person’s credit report, which includes information about their credit accounts, credit inquiries, and payment history. The credit bureau compiles information from various sources, including banks, credit card companies and other lenders to create the CIBIL report. In this article, we will see how defaulting on payments and delaying them can potentially affect your CIBIL score. 

Can One Missed Payment Affect Your CIBIL Score?

A single missed payment can have an impact on the CIBIL score. When a payment is missed, the lender usually notifies the credit bureau, and the information will appear on the credit report. Now the question is, does paying minimum due affect CIBIL score?  

Well, if you have a habit of paying only the minimum amount due over time, your credit utilisation will consequently increase. If you follow the same practice for a few months, it can negatively impact your credit score. 

To quickly summarise, skipping payments, paying late, or making minimum payments can all affect your credit score – albeit in different magnitudes.  

What is the Effect of a Missed Payment on Your CIBIL Score? 

When it comes to maintaining your credit score, it is important to avoid making late payments to maintain a good CIBIL score. A single late or missed payment can have a long-term negative impact on your CIBIL score, which can also affect your creditworthiness. The silver lining here is that the negative effects start to fade away as soon as the borrower continues to discipline their payments. It is worth noting that the impact on your credit score is greater if a payment has been missed recently. A low CIBIL score results in loan or credit card application rejection.  

To summarise, it is important to make timely payments and follow all of the CIBIL score-based best practices to avoid the adverse effects of missing payments on the credit report and to maintain a good CIBIL score. 

Minor and Major Payment Defaults

Payment defaults are divided into two categories: minor and major.  

Minor Default: When a borrower misses or delays payment for less than 90 days, this is considered a minor payment default. Banks and lenders consider such defaults to be minor because they believe they will be resolved quickly. However, the CIBIL score is temporarily impacted in this case. 

Major Default: When the borrower pays the credit amount but does so after 90 days, this is considered a major payment default. As a result, the CIBIL score suffers more. Also, major payment defaults along with low CIBIL scores hinder future loan or credit card approval. 

The exact impact however depends on factors such as the length of the delinquency, the amount of the missed payment, and how recently the payment was missed. The frequency, severity and recency of missed payments can affect your credit score in different ways. 

Impact of a Missed Payment

Here's how a missed payment can affect you:

Decrease in credit score:

Missed payments can lead to a drop in your credit score. Payment history accounts for a significant portion of your credit score, thus, a missed payment can have a significant impact on your creditworthiness. 

Late payment fees and interest charges:

If you fail to make a payment on time, you may be charged late payment fees and interest. These fees and charges add up to the outstanding loan amount which increases the overall cost of borrowing.

Difficulty in obtaining credit:

Missed payments can make future credit applications more difficult, as lenders may be less willing to extend credit to you.

Higher Interest Rates:

If you are approved for credit despite having missed payments on your credit report, you may get offered higher interest rates, making borrowing more expensive.

Negative impact on credit report:

Missed payments can stay on your credit report for up to 7 years, which can have a negative impact on your creditworthiness during that time. 

How to Improve CIBIL Score?

Maintaining a healthy credit score is essential for accessing credit in the form of loans or credit cards. A low CIBIL score may result in higher interest rates and unfavourable loan terms. Improving your CIBIL score requires time and effort, but there are several steps you can take over time to improve your score. Here are some pointers to help you increase your CIBIL score:

Never leave any debts unpaid:

One of the most important factors influencing your CIBIL score is your payment history. Make sure to make all your credit card and loan payments on time to avoid late fees and a negative impact on your credit score.

Maintain a low credit utilisation ratio:

The percentage of your available credit limit that you are currently using is referred to as your credit utilisation ratio. Maintaining a low ratio can help you improve your CIBIL score. Try to keep your credit utilization below 30%-40% of your total available credit limit.

Do not make multiple credit card or hard inquiries:

Every time you apply for credit, it gets recorded in your credit report and may negatively impact your credit score. Avoid applying for multiple credit products within a short period of time as this can hurt your credit score.

Maintain old credit card accounts:

Your credit history has a significant impact on your credit score. Keeping your old credit accounts open can help boost your credit score by demonstrating a long history of creditworthiness.

Check your credit report for errors:

It's important to review your credit report regularly to ensure that there are no errors or discrepancies that could be harming your credit score. If you discover any errors, have them corrected by reporting them to the credit bureau.

Maintain a credit mix:

Having a variety of credit products, such as credit cards, personal loans, and Home Loans, can help your credit score. This demonstrates to lenders that you can manage various types of credit. 

Also Read: Credit Mix: Different Types of Credit that Boost Your Credit Score 

Ways to Avoid Late Payments

Late payments can have a significant negative impact on your CIBIL score. There are many methods for avoiding late payments; however, it is the borrower’s responsibility to adhere to it:

Choose the option for an automatic debit:

Setting up automatic payments for your bills is one of the simplest ways to avoid late payments. This function takes the predetermined credit amount each month out of the borrower’s bank account. Many lenders let you set up automatic payments for recurring bills such as credit card payments, loan payments, and utility bills. You can ensure that your bills are paid on time every month by setting up automatic payments, and you won't have to worry about forgetting to make a payment.

Set up reminders:

Set up alerts for the payment deadline and credit payment due dates. If you prefer to pay bills by hand, consider setting up reminders to help you remember when they are due. Set reminders for your bills using a calendar or a reminder app so you don't forget to pay them.

Contact your lender to change the payment date:

If you're having trouble making payments, you should contact your lender and try to work out a payment plan or a new due date that works better for you. Most lenders will help you find a solution that allows you to avoid late payments and keep your credit score intact.

Convert outstanding payments into EMIs monthly:

One of the best strategies to manage debt and raise your CIBIL score is to turn outstanding payments into Equated Monthly Instalments (EMIs), if applicable. EMIs can offer an organised way to pay off the debt over time, and they also help to raise your credit score. It shows your commitment to repaying the debt and makes managing your finances easier when you turn unpaid balances into EMIs.

Also Read: Impact of Late Payment on CIBIL Score? 

Final Words

In conclusion, keeping a high CIBIL requires avoiding late payments. You can maintain or improve your credit score by various methods such as setting up automated payments, creating a budget, utilising reminders, and keeping an eye on your credit report among others. To avoid late payments, keep in mind that having a high credit score can help you avail of loans and credit with advantageous terms.

Also Read: 7 Tips to Help You Boost Your CIBIL Score