Impact of Late Payments on Credit Score


Loanadda Bank Loans News

31-Jul-18

Today, Credit Score is the most dominant factor in the credit system that decides the fate of the borrower. A three-digit score is a powerful tool to assess borrower’s capability for a particular credit product. Most of the lenders reject an applicant with a bad credit score even without considering other parameters. And if you have faced any rejection recently, who knows the value of credit score better than you. But do you really know how credit score affects your loan application? What harm a single default or late payment can do?

The value of financial discipline can be known from the fact that even a single miss in EMI will have an impact on your CIBIL. Late payments and defaults each impact in their own ways- defaults can have a greater impact on your CIBIL while late payments may not effect to that extreme. It is easier to understand- a late payment means you have paid up your dues but not in time, while default means you have intentionally missed the payment for a given month and that is against the agreed terms.

The credit score is the parameter at which lenders look at very seriously. And credit score is the sole and crucial parameter to judge the creditworthiness and repayment capacity of the borrower in case of unsecured loans where there is no involvement of any collateral.

Apart from influencing the approval/rejection of your loan application, the credit score also decides the amount of loan that will be offered to you and the rate of interest rate on a particular loan application. A good credit score offers you a big amount and at low-interest rates.

After all, the importance of a good credit score cannot be ignored as we know even a single default can reject all your applications for next one year, or unless you work hard on your credit score.

Late payments may not sometimes land you up in direct rejection but they can prevent you from getting easy and good deals on your loan application. For example for a home loan, banks evaluate the CIBIL score of 3-4 years and any late payments and few defaults will automatically reject your application. And there may be some banks or lenders that may offer you the home loan, but at a much higher rate of interest rate. In that case, your interest amount will be more than your principal amount for 20 years or a longer tenure. 

So by now, you might have realized how each and every EMI and its timely submission is important for your credit score. It is best to keep aside few months of EMI so you can neither miss nor be late.