13-Apr-2017 written by : FSI-Team
Missing a payment can happen to anyone, unless you are a software programmed to repay every instalment. Don't let that give you sleepless nights; it is merely a human oversight. Lenders and underwriters, too, are human beings and they understand if you have been late once or twice. But if you have been late more than a few times, then be prepared to face consequences.
Apart from being levied a late fee and interest charges, frequent defaults can mean a massive blow to your CIBIL score. Member credit institutions report payments from every borrower to credit bureaus every month. This information is recorded in the "Days Past Due" schedule in the CIBIL report. This table gives an account of month on month payments for the last three years. Lending institutions study this table for defaults.
While a miserable score will give away the fact that you have been missing payments in the past, the DPD schedule will help them with details like how frequently you have missed payments, to which credit accounts, etc. This will make them draw conclusions that you are not a reliable borrower. It is easy for them to make the assumption that since you haven't repaid debts on time in the past, you won't pay to them either. Beyond doubt your loan or credit card application will be instantly rejected.
So does that mean you must panic if you inadvertently forgot to pay your credit card last month? Or, is it okay to miss a couple? Do lenders notice one or two missed payments or are they overlooked? Here are answers to some pressing questions:
1. Credit institutions, primarily, focus on the pattern of payments over time. They look at how long ago were the most recent late payments? The more recent the default in payment, the greater is the impact. On the other hand, the older a payment was missed, the less severe is the impact. However, that is assuming that you have been maintaining a good payment record ever since you missed making one long back.
So if delayed payments were a while ago and you have been doing well since then, it means your past can be overlooked. Whereas, if you were doing well until recently but have passed a few payments in recent times, then it indicates something's not right with your current financial position.
If you are looking to apply for credit very soon then make sure you haven't made even a single default at least for the last six months to one year.
2. That is, were you late by 30 days, 60 days, 90 days or more? As per RBI guidelines, if a payment to any account has not been received until 90 days then that account will become NPA. If you were late by 30 days or less, the impact on your score will be light and recoverable. If the default was for more than 60 days, the impact on CIBIL score will be harsh while by the 90th day, your score would have surely ruined.
3. Were you late on more credit accounts than one? The most common are credit cards. Credit card bills are recurrent in nature. They arrive in mail every month. Sometimes they don't. Example: you have not used a particular card for some time and then used it once in the next month. You may forget making the payment in the following month as it is not part of your everyday routine. This and numerous more reasons can be cited to why we forget to pay credit card bills.
Other loans, say home loan, are usually ECS linked. They are auto debited every month and therefore there is not much need to remember making a payment. So unless you are not careful about the funds in the linked account, you are not bound to be late on those payments.
Assuming you have been late on more than one credit cards and even ECS on your personal loan bounced. This would mean you have been in default. This will not be taken lightly by the underwriters.
It is a known fact that to increase credit score one must make payments on time. So it is obvious that not making timely payments will decrease the credit score. It is important to note that late payments may not bar you from accessing loans in future, unless your score is in a sorry state, but they can certainly keep you from enjoying competitive terms.
Knowing that a late payment would not be too impactful will help ease your anxiety. But don't make a habit of being late because more than a few can really wreck havoc.