How Do Late Payments Come Back To Bite You?
When you check free credit score online, the credit score that comes up is based on a number of factors. Let’s see what all factors come into play and how much importance each of these hold:
- Payment History - 30%
- Credit Exposure - 25%
- Length of Credit - 25%
- Total number of accounts -20%
So, as you can make out from the table above that your payment history holds maximum importance when it comes to affecting your credit score. This means if you are paying your bills on time and your EMI payments are not getting delayed then you will be in a comfortable position as a borrower. Whereas, if you forget to pay back on time, your credit score can take a serious hit.
Late payments against your EMIs and your credit card bills are never taken leniently by your lenders and while making a recovery from you this is the most important factor which concerns them. When a situation arises where you fail to pay on time in a particular month, the
bank will report it back to the credit rating agencies and your credit report will take a hit.
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Let’s see how bad a deferred payment can hit your Credit score :
1.Did you know that According to a recent study by CIBIL, a 30-day deferral can cut down your credit score by 100 points? If you defer the payment further, your score will keep on reducing until you start paying back on time and work on building your credit score.
2.Each and every credit bureau has its own set criteria of calculating your credit score, which is why there is not one but many different models for evaluating your credit score. This is a big factor because a late payment can have a huge impact on your credit score from one credit bureau against another.
3.In case you are a constant defaulter and have been delaying payments for couple of months now, your credit score will take a huge hit.
4.If you make late payments, you will end up paying more money in late payment charges and extra on interest rates which will make you lose more money than you actually borrowed
6.Improving your credit score is not as easy as you may think. It takes time for your credit score to come back to a position where you feel you are going well.
7.The impact of late payment recedes over time, but if you miss one credit card bill, the default will remain in your credit report for 7 years. 7 years is an exceptionally long time, imagine suffering financially for that many years and plan accordingly!
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Now what all can you do to avoid falling short on payments ?
•Set up an Auto-Debit Plan:
If you think that it’s hard to keep up with the pay dates, auto debit is a good option. You don’t have to remember your pay dates and the money will be auto-debited from your account on the due date. You can contact your bank/lender to avail this facility.
•Set a reminder for yourself :
If you have a habit of forgetting your payments, it is important that you setup email and text alerts so that you get an alert beforehand. Setting up reminders on your cellphone is another way of remembering your important dates.
•keep a close watch on your credit report :
If you keep a close watch on your credit report can have loopholes that you might not come across otherwise. Your credit report also keeps you updated about your financial habits.
Late payments do have an impact on your credit report but it’s not the end of the world. You can always bounce back to your good days and start over with a good score. One bad day doesn’t mean that you have become a defaulter for the banks. So, just relax and let your good financial habits work for you and everything will fall in place.
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Late payments have an immense impact on your credit report, but you have got to realize that it’s not the end of the world. There is always a chance of bouncing back to your good days and start over with a good score. One bad month doesn’t define you as a defaulter and neither dose it give any indication to the banks that you have become a defaulter for them. So, just relax and let your good financial habits work for you and everything will fall in place.