Does late payment of credit card bills affect your credit score?
At times, we may miss to pay the credit card bills due to medical emergencies, unforeseen expenses or general budgetary crisis. It is important to note that non-payment of dues has an impact on your credit score. Banks charge interest rate on a daily basis. For each day away from the payment due date, the bank will charge you an interest.
Importance of credit history
Banks and NBFCs rely on your credit score to take a call whether to sanction you a loan or not. It is important to note that your payment history has foremost bearing on your credit score. Normally, banks report to the bureau after 30 days past the instalment or payment due date. This delay in payment would be detrimental for your credit score. Late payment of dues or instalments would be recorded and marked on credit report on the condition how late they are: 30 days, 60 days, 90 days or 120 days. Be aware of all these facts before you apply for credit card anywhere.
Late Payment of credit card dues
Late payment of credit card outstanding obviously affects your credit history. The impact varies on the how late the payment is and the repetition of such charges. Every credit rating agency has a different way of calculating the credit score and it varies from bureau to bureau. The longer an instalment remains unpaid, the more damaging would be with regards to your credit score. For example, a payment is 100 days late can have more impact than a payment that is 50 days late.
One Late Payment of big credit card due could have a damaging effect on your credit score. If your credit score is already lower, the late payment won’t impact much. But if your credit score is in excess of 800, then a late payment may lower your credit score by 90-100 points all of a sudden in one go.
One entry of late payment will remain in your credit report for upto 7 years. After seven years, you can have it removed. If you are in the habit of paying late or if the lenders send the collection team to collect the dues, remember that your credit score on these circumstances take a critical hit. Check your free credit score at Fincover, to stay on top your credit health.
This is apart from the late payment and interest charges you are forced to pay for non-payment.
Credit Cards have a concept called partial payment where you can make a part payment towards the amount outstanding. This is one way to keep your credit score safe. However, please remember that the interest will be charged by the credit card issuing company for the remaining amount. Also, if that cycle continues for a long time, your outstanding will grow and you will end up falling in a debt trap
Steps to stop payment impact on your credit score,
- Select payment due dates where you will be financially free. Most credit card holders allow their lenders to select the due dates
- Keep remainders about the payment outstanding. Set up reminders
- Banks wouldn’t report to the credit bureau until it’s past the 30 days. So, if you cannot afford to pay the full amount, at least makes a part payment towards the outstanding. In some cases, you can talk to your card providers and ask them not to send a late payment report.
- Regularly monitor your credit report. If you notice any errors or discrepancies, co-ordinate with the bureaus and get them corrected as soon as possible
- Automate your credit card payment – By doing this, the amount will be automatically deducted from your savings account. You can give standing instructions to settle either Total Amount due or Credit card in your savings account.
It is worth remember credit card non-payment of bills is a serious offence and can terribly impact your credit score and report. Hence, make use of your credit card diligently.