Impact of Late Payment on CIBIL Score

In today's world, individuals can avail of loans and credit cards to fulfil their financial goals. A key factor in accessing credit is the CIBIL Score, which reflects a person's creditworthiness through a three-digit number assigned by CIBIL. Banks and financial institutions typically require an ideal credit score to extend loans at lucrative terms. Your credit score is based on past borrowing and repayment habits. 

What is a Late Payment?

A payment that isn't made by the due date agreed upon by the borrower and the lender, is considered late. Late payments can lower a borrower's credit score and make it challenging for them to get loans in the future. To avoid damaging your credit score, it's important to check your CIBIL score and complete all your transactions on time.

Does Late Payment Affect CIBIL Score?

Yes, but before getting into what affects a CIBIL score, let us discuss what a CIBIL score is. A one-line answer would be that a CIBIL score is a three-digit numerical summary of your credit history, rating, and report that varies from 300 to 900.

Late payments can have several detrimental effects on a borrower's credit score and future ability to get credit. Following are some of the possible effects of late payments:

• Negative effects on credit scores: When assessing your loan application, lenders may specifically look for late payments recorded in your credit report. Late payments can decrease a borrower's credit score.
• Difficulty in getting credit: Having a history of late payments can make it challenging for a borrower to qualify for a loan or credit card. Even if the borrower is granted a loan or a credit card, they may have to pay a higher interest. 
• Increased default risk: Late payments generally indicate financial instability and may be seen as a risk by the lenders. Consequently, a borrower may find it challenging to get credit in the future. 
• Negative effect on the credit report: Late payments are reported to credit bureaus and will show up on the credit report of the borrower. This may affect the borrower's capacity to avail of loans at favourable interest rates. 
• Difficulty in recovering a low CIBIL score: After getting a late payment remark, borrowers may experience difficulties in improving their credit score. In such circumstances, it becomes important for them to practice prudent credit behaviour. 

What is 'Day Past Due' (DPD)?

Day Past Due (DPD) indicates how many days you've missed making a payment on your loan or credit card. If you have previously made on-time payments, your DPD will be listed as '0'. If you are 30 days late with your payment, your report will reflect '30' against the preceding month. 

There may be instances in the Day Past Due section when 'XXX' is stated. It signifies that the lender has not submitted the bank with payment history information. If you notice it on your credit report, you should not be concerned as it does not affect your future possibilities of getting a loan or credit card approval.

Tips to Maintain a Good Credit History

You can take measures to prevent late payments and maintain a good credit history. You can avoid late payments by following these instructions: 

1. Set up automatic payments: Several lenders give you the option of setting up automated payments, ensuring timely payments. Essentially, this means that you leave standing instructions to your bank that the bills are to be cleared on a certain day of the calendar month.   
2. Use a datebook or reminder system: To help you remember when payments are due, mark the dates for all your bills on a calendar and/or set up phone or email reminders. 
3. Sustain a budget: Check whether you have enough disposable income in your account to pay all of your expenses and adjust your spending as necessary to prevent going overboard and defaulting payments. 
4. Talk to your creditors: In case you are having trouble paying a bill, get in touch with your lenders as soon as you can to let them know and to discuss alternative payment solutions. 

Summary

A clean credit history can increase your chances of getting approved for loans such as a housing loan, business loan, or loan against property. To ensure you are credit-conscious and prepared for loans when you need them, keep an eye on your credit report frequently. If you find any incorrect information on your credit report, raise it with CIBIL and have it rectified. 

Also Read: Importance of CIBIL Score and Tips to Improve It 

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