Impact of a late payment on your credit score

By now, you are already aware of the fact that if you intend to borrow a home loan from any bank in the country, you must have a CIBIL score of 750 and above. With the banking regulator aspiring to bring in more transparency in the process of lending, you credit score is increasingly going to make a big difference whenever you apply for a loan.

There are several parameters that go behind the make-up of your CIBIL score and the most important one is your repayment history. If you are guilty of non-payment or habitually delaying your payments on credit card bills or other loan accounts, it is bound to have a negative impact on your score that in turn will hamper your chances of getting a loan.

Here is how your late payments impact you as a borrower:

  1. Every late payment has a negative bearing on your credit score and pulls it down, making you less “loan attractive” in the eyes of your prospective bank.
  2. Bankers view you as a high risk customer and will be wary of giving you a loan if you have a history of making late payments.
  3. This negative credit history will remain as a record on your credit report for years and will hamper your chances of getting loans in the future.
  4. Apart from reducing the score and chances of getting another loan, paying a late fee to your bank will add up to the total cost of your existing loan.

So, if you were to ask what will be the impact of a late payment or a missed payment on your credit score, the answer is that it is going to depend on how good or bad your score is in the first place. The irony of the situation is that the better your score, the worse the impact is of a single late payment on your credit score. According to rough estimates, a single payment missed may shave off as many as 50-70 points from your CIBIL score.

Lets now scrutinize exactly how late payments may impact your CIBIL score:

  • The time factor- The question to be asked is how recently or how long ago did you miss a payment? A payment that has been recently missed has a much worse impact on your score.
  • The severity- The longer you take to make your payment, the lower your score tanks. For instance, if you have missed the payment by seven days the impact will be much milder than missing a payment by ninety days.
  • The frequency of missed payments- Your CIBIL credit score also takes into account the number of times you have missed payments in the past and how many accounts have you made late payments or missed payments on. The higher this number, the worse is the impact on your score.

The advice to any aspiring home loan borrower is to get your CIBIL score and report at least a year ahead of when you intend to apply for a home loan. You should also ensure timely payments on all loan accounts regularly for 12 months before you fill you that a loan application form. Applying with a high credit score not only increases your chance of getting a loan, it also gives you greater negotiating power to ask for better rates of interest on your loan.