Your credit score is a measure of your creditworthiness. And lenders, such as banks and non-banking finance companies (NBFCs) use it to determine your eligibility for a loan. The score ranges from 300 to 900.
Since your credit score reflects all your loan and card repayments, missing a payment on any kind can leave a significant impact on your credit score.
Impact of missed payments on your credit score
Your payment history is one of the most important factors in determining your CIBIL Score. A missed payment can stay on your credit report for up to seven years, and it can significantly hurt your score. If you have a history of missing payments, lenders may see you as a high-risk borrower and may be hesitant to approve you for credit.
Secondly, a missed payment can mean higher interest rates on loans and credit cards. Lenders may see you as a riskier borrower and may charge you a higher interest rate to compensate for the increased risk. This can result in higher monthly payments and a higher overall cost for the loan or credit card.
Thirdly, a missed payment can result in additional fees and penalties. If you miss a payment on a credit card, for example, you may be charged a late fee and interest on the unpaid balance. These fees can add up quickly and can make it even more difficult to catch up on missed payments.
Understanding the difference between minor and major defaults is crucial for customers as it can help them comprehend the impact of missed payments on their credit score.
Minor defaults refer to payments that have been delayed or missed for a period of less than 90 days. While such defaults have a negative impact on the CIBIL Score, they are considered temporary in nature and may not have a lasting effect.
Major defaults occur when an individual fails to make payments for a period exceeding 90 days, and the account is classified as a non-performing asset. This is a serious default and can severely affect the individual's credit repayment history, making lenders hesitant to offer loans.
It is important to note that both minor and major defaults can harm your loan eligibility. However, timely payment of subsequent bills following a minor default can help you correct the damage.
What can you do to prevent a missed payment from impacting your CIBIL Score?
The most important thing you can do is to make your payments on time. Set up automatic payments or reminders to ensure that you never miss a payment. If you do miss a payment, contact the lender as soon as possible to catch up on the missed payment.
It's also a good idea to regularly check your credit report to ensure that all of your information is accurate. Errors on your credit report can negatively impact your score, so it's important to address any errors as soon as possible.
In conclusion, maintaining a good credit score is essential when applying for a personal loan. Even a single missed payment can lower your score and reduce your chances of loan approval. To improve your creditworthiness, ensure timely repayments, monitor your credit report for any discrepancies, and take proactive steps if you're facing financial challenges.
With the Credit Pass subscription, you can track your CIBIL Score and access a personalised Credit Health Report. It helps you understand the key factors affecting your score and manage your credit profile effectively—making it easier to secure a personal loan when needed.
