Rohan is browsing through his mail. He sees the monthly credit card bill sitting in his inbox, oh-so-proudly. It was his birthday month and his bank gave him a new credit card with a generous limit. And this leads to the crux of the matter: he crossed the planned budget! Now, he is contemplating if he should pay a partial amount this month and the rest next month or leave all of it for the end of the month, when he receives his salary.
He thought to himself, “What if I miss just one odd credit card payment? I am sure the bank will not mind!” Haven’t you too had this thought at some point in time? The honest answer is, they won’t mind you missing a payment… but they’ll add an interest to it. “But what about my credit score?” Rohan thought. As far as that is concerned, yes it will be affected.
Sometimes, missing a credit card payment might not be intentional; it could be because of a billing mistake or because of a financial crisis. But a lender does not look at it in favour of your credit history. It only shows that you, at some point in time, have faulted on clearing your credit card dues. A missed payment doesn’t only affect if it is your credit card, it can also affect your score on add-ons cards, where you take accountability of someone else’s expenses too.
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How does a single missed payment affect your credit score?When you miss paying your credit card dues on time, the interest added on it is compounded daily. So you can end up paying an interest of 3-4% per month depending on your credit card limit. The same applies to your outstanding amount when you pay the minimum amount. In short, if you do not clear your monthly credit card dues on time, you will see your amount blow up significantly and can increase your repayment period as well!
In such cases, lenders see you as an unfit borrower- someone who is more likely to default on timely payments.
Need a simple solution? Financial discipline!Your score is calculated taking into account the last 24 months of your credit history. So that is how long it will take for you to mend your credit score for good if you end up missing on your timelines. Even so, these transactions will be visible on your credit history for 36 months.
In order to mend or rebuild your credit score, you will have to hold your end of financial well-being with absolute dedication. Ensure that you do not let a single instant arise that can have an impact on your credit score.
Ways to rebuild your scoreTo get back on track and raise your credit score, you have to be vigilant about the following things:
- Make it a point to repay your debts and dues fully in time. A part payment indicates that you have difficulties in repaying but no problem in borrowing. So, do not let your outstanding debt snowball.
- Consider taking a personal loan to repay your outstanding credit card dues. This way you will get rid of a compounding interest and end up clearing just one part of debt, your personal loan.
- Avoid making any transactions on your credit card till your dues are cleared. This will appear to be difficult but it is for your financial well-being.
- Keep a close check on your CRIF Personal Credit Report to follow-up on the developments and take stock of your next steps.
Having the freedom to spend more than your current affordability is very tempting till it becomes a huge snowball of debt. Avoid reaching that point with your credit cards and ensure that you pay your credit card dues on time. Missing even a single payment can affect your credit history badly.
Take stock of your financial history by pulling your CRIF Personal Credit Report and start making wise choices right now!