Missing a Single Payment Can Affect Your CIBIL Score

TransUnion CIBIL provides CIBIL scores to individuals and CIBIL ranks to businesses and companies. A Credit Information Bureau of India Limited (CIBIL) score is required at the time of applying for credit, be it secured credit such as a home loan, or unsecured credit, such as a personal loan or credit card.

Your CIBIL score determines your creditworthiness and helps lenders assess the risk of providing you credit. If you follow disciplined credit behaviour, you will have a good credit score. However, missing a single payment can affect your CIBIL score. Let us understand how repayments matter while calculating the credit score.

Impact of Missed Payments on Your Credit Score

There are a variety of factors that affect the CIBIL score of an individual and one such issue is missing the repayment of a loan installment or a credit card bill. When you miss out on a single loan installment or credit card bill, you shall notice that your CIBIL score dips by a significant number. Some of the prime consequences are as follows:

• Your CIBIL score is impacted negatively if you miss even a single payment for any loan or purchases made using a credit card
• Missed as well as late payments get reflected in your credit report. This is something you wouldn’t want if you are planning to take a loan or a credit card soon
• Every instance of missed payment remains in the credit report for at least three years. Multiple instances of missed payments can indicate indisciplined credit behaviour and thus pose a higher risk of default.

Minor and Major Defaults in Your CIBIL Report

For you, it is quite important to learn about the difference between minor and major defaults to gain a better understanding of missed payments and their effect on your CIBIL score.

• Minor Defaults: Repayments missed or delayed for a timeframe of less than 90 days are regarded as minor defaults. In such cases, your CIBIL may fall for some time and eventually increase once you start repaying your credit on time

• Major Defaults: When a borrower fails to make repayments for more than 90 days, the credit account is tagged as NPA (non-performing asset). It is considered as a major default.

Your credit score may improve after some time in case of a minor default. Once your credit score improves, you can apply for a credit product and get your credit approved.

However, if there are numerous instances of such defaults regularly, it means that the borrower is not able to keep up with the repayments and thus would be considered very risky. Lenders would refrain from approving credit applications of such applicants.

A major default in a credit report may make it very difficult for you to improve your credit score. One major default would lower your credit score to such a level that it would be tough to raise it to 750 or above. It also makes the applicant less creditworthy and the risk factor is very high for lenders. Thus, most lenders refrain from approving any credit product of such applicants.

One can easily infer that under both scenarios the loan worthiness of a customer is hampered. However, it is important to note, that in case of a minor default, you can recover your CIBIL score which is almost impossible in case of a major default.

Financial Emergency & Skipping a Repayment

If you have missed a payment due to any sort of financial emergency or burden, then it would be visible on your credit score. In this situation, credit bureaus note this default and mark it in their credit report.

Suppose, you have failed to complete a payment for a single month and fulfilled the payment in the second month; you would notice that this data has been forwarded to the credit bureaus by the respective lending establishments.

Ways to Improve Your CIBIL Score

Your low CIBIL score is never permanent. You can follow some tips to improve your CIBIL score. Some of these measures are listed below to be followed to witness a gradual rise in your CIBIL score over a few months:

• Pay your loan EMIs and credit card dues on time and in full
• Keep your credit card utilization ratio below 30%
• Limit your new credit card or loan applications
• Avoid closing your old credit accounts
• Check your credit report periodically for errors
• Fix your late payments as soon as possible
• Don’t apply as a guarantor for a loan till you have a good credit score

FAQs

Q. Will one missed payment affect credit rating?

Ans. Yes, even a single missed payment can impact your credit score negatively.

Q. How long does it take to recover from one missed payment?

Ans. It may take anywhere from three months to a year to recover from a missed payment depending upon how frequently have you missed payments in the past.

Q. Does one-day late payment affect CIBIL score?

Ans. Yes, a late payment of even 1 day can impact your CIBIL score. However, the level of impact might not be as severe as the one missed for more than 90 days.

Q. How long will one late payment remain in the credit report?

Ans. A single late payment may remain in your credit report for at least 3 years.

Q. How to delete missed payment entries in my credit report?

Ans. Unfortunately, there is no option to delete any entry in your credit report. In case there is an error, you can raise it directly with CIBIL and get it rectified at the earliest to negate any impact on your credit score.