Can Failed Credit Card Payments Reduce Your Credit Score?

01-Feb-2019 written by : FSI-Team

Can I Really Get My Credit Score For Free?

There are many advantages to using a credit card. For starters, you can buy things you need even when you’re in a pinch, and you can enjoy all kinds of discounts, perks, and cashback offers by using the right type of card at the right place. However, what happens when your credit card payment is declined for any reason? Does it affect your credit score? Let’s find out.

Failed Credit Card Payments and Credit Score

A credit card transaction can be declined for many reasons, and some of these may have an adverse effect on your cibil rating. For instance, if you have entered the wrong PIN for the transaction, or in case the card itself has expired, then the failed transactions won’t incur a credit score penalty. However, if a transaction has failed due to any of the reasons below, then your rating may be hurt.

Insufficient Credit

If are trying to pay for something that costs more than the limit that’s left on your card, then the payment will surely decline. However, it’s also an indication that your credit score is taking damage too due to the concept of credit utilization ratio.

Credit utilization ratio is the ratio of your average spending per month with credit cards and your card’s limit. So, if you are spending around 30,000 INR per month and your card has the maximum limit of 50,000 INR, then the credit utilization ratio would be:

30,000/50,000 = 0.60 = 60%

Ideally, the utilization should be less than 35%. If it’s higher than this, then your credit score will drop over time.

Unusual Activity

Your bank may decline a transaction if it detects unusual activity, and it might not be directly related to you either. For instance, if someone replicates your card by using a skimming device, or steals the credentials viz. card number, PIN, etc. and tries to shop for expensive items in a short period, then the bank may decline these transactions and even deactivate the card temporarily.

If your card is compromised, then any unauthorized transactions would not only hurt you financially, but they may also hurt your credit score. This is why credit experts strongly recommend that you track your statements frequently and set up SMS alerts as well.

How to Protect Your Score?

Your cibil rating is extremely important which is why you must everything in your capacity to protect it. The following are some of the things you can start with:

As mentioned above, high credit utilization is never good for credit score. So, you can either bring down your expenses so that you have to use your credit cards less frequently, or otherwise, you can also get an additional credit card. This is because when your average monthly expenditure remains the same but you split it with two cards, then the utilization ratio is lower.

Credit Report Monitoring

Checking your cibil report every month or two is a really good habit that helps you in many ways. For starters, it allows you to stay on top of your credit card payments and expenses. You can also identify frauds easily if you observe anomalies in payments and/or loan inquiries, etc.

Timely Payments

One of the most important things that you simply can’t overlook if you seek to improve your cibil score, is the timing of credit card payments. If you miss the deadline of a single payment, it can affect your score. If you miss many credit card payments in a row, then you can cause massive damage to your score. So, it’s strictly advised that you prepare your budget in a way that you have enough money by the end of every month to pay the bills.

Bottom Line

As you can see, failed card payments can indeed hurt your score when you know the actual reason. However, you need to do a lot more than just being informed if you want to achieve a high cibil score and prevent fines and penalties from being added to your bills. So, do apply the information shared above and check your cibil report every once in a while to stay alert. Good luck!



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