How Missing a Single Payment Affects Credit Score?

Missing out on EMI payments is something that can occur due to a variety of reasons. These usually include a sudden financial crunch, inability to remember the dates of payments, and so on. Irrespective of the cause, there is a prominent effect of this action on your credit score. Keep reading to know what are some of these impacts that you will need to bear in case you overlook the payment of monthly installments while repaying your loan.

Effects of Missing a Single Payment on Credit Score 

The most notable impact of missing out on EMI payments is a significant drop in the CIBIL score. These effects continue to become severe with an increase in delay of the payment as follows:

  • If you pay the installment within 30 days from the due date, there is not much effect on the score. At most, you will have to pay a fine to your lender for deferring it.
  • Once the delay crosses the 30-day mark, you will notice a reduction in your credit score by 100 points.
  • If the EMI payment is further postponed and crosses the 60-day mark, there will be an additional 100 deducted from your current score.
  • If this delay crosses 90 days, there can be a prompt reduction in your credit score which might require up to seven years to improve.
  • Once you defer the payment of monthly installments beyond 120 days, the lender will mark your debt as a charge-off on the credit report and sell your debt account to a third party.

There are different types of default, either of which can occur if you delay in the timely payment of EMIs. 

Types of Default Cases Due to Missing Out on Payments

There are majorly two types of default cases that can result due to missing out on payments of monthly installments. These are as follows:

  • Minor defaults: If the delayed number of days in the payment of an installment is below 90, financial institutions consider it as a minor default. In this scenario, your credit score will get severely hurt. Nonetheless, over time, with the help of strategic planning, you can successfully improve it. 
  • Major defaults: Financial institutions usually label a delayed EMI payment as a major default if you are more than 90 days late in paying it. On such occasions, the lender will label your account as a non-performing asset (NPA). If this happens, apart from a severe lowering of your credit score, the chances of your receiving a credit approval in the future will almost become negligible. 

Viewing these impacts, it becomes crucial that you ensure timely payment of the EMIs. There are several ways in which you can pay your monthly installment on time. 

Ways to Avoid Missing Out on EMI Payment 

Following are some of the sure-shot ways in which you can avoid missing out on the monthly installments during loan repayment:

  • Set up EMI payment reminders: You can set up reminders on your mobile or other devices that would notify you about the approaching date of EMI payment. This is beneficial as you can stay alert and check the availability of the instalment amount in your account to prepare accordingly. 
  • Go for auto payment of EMIs: This is a popular option as it minimizes the chances of missing out on the installment payments to almost zero. Once you intimate your bank about the same, the installments will get automatically paid to the lender on the due date. This promptly reduces your burden of staying conscious about EMI payments.
  • Make advance payments: At times, you can also pay the monthly installments in advance if there is enough availability of funds. Also, you can break your monthly installments into small amounts and pay them before the due date. This makes the repayment simpler and reduces the chances of missing out on it.

These steps can effectively minimise the chances of delay in EMI payment. However, if you still miss out on it, there is a notable dent in your credit score. Nonetheless, you have nothing to worry about. There are several guaranteed tips on how to improve your CIBIL score that you can employ to improve the same.

Guaranteed Tips to Improve Your Credit Score 

Below are some guaranteed tips using which you can improve your CIBIL score:

  • Avoid applying for loans unnecessarily: It is crucial to apply for a loan only when you are in urgent need of funds and do not have other options left. Otherwise, if you keep applying for loans frequently, there might be a hard inquiry, which can reduce the score.
  • Go for a healthy credit mix: Having an experience of repaying both secured and unsecured loans is beneficial when opting for a new credit. Hence, CIBIL bureaus assign a higher credit score to individuals who have taken both types of loans and repaid them on time.  
  • Check your credit reports regularly: At times, there can be major errors in the credit report that can lead to a reduction in score. Hence, it becomes vital to keep checking your cibil score and the credit reports to immediately rectify any errors.
  • Increase your card limit: If you have a habit of overspending, try to keep the card limit high. This way, even if you spend excess, it stays within the upper limit of your card. Hence, it can improve your credit score over time.
  • Keep records of older debts: The CIBIL bureau assigns a score to individuals based on their loan repayment history of an individual. Thus, it is essential to properly maintain these records to get a higher score. 
  • Avoid keeping multiple credit cards: Keeping multiple credit cards can project you as a poor financial planner who is constantly in need of money. Hence, it is imperative to avoid the same and improve your credit score.

Missing out on a single payment can severely hurt your credit score. Once this happens, it can take a long time to recover from the drop. Score improvement usually takes somewhere between six months and several years. There are multiple factors like the cause for lowering of your score, financial habits, and your present score, that notably impact the duration required for improvement of CIBIL scores.

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