Does a Failed Credit Card Payment Pull Down Your Credit Score?

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.

Related Reads: 5 Things You Should Do When You Get A New Credit Card

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 score
To 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!

5 Hacks to Boost Your Credit Score Before Applying for Home Loan – An Infographic

A good credit score can significantly improve your chances of obtaining a big-money loan to acquire the home you always wanted. Credit score is values that are ascertained after analyzing an individual’s credit files and are used to determine whether a person is creditworthy or not. Banks are quick to deny loans if credit scores do not meet their prescribed limits. Therefore, it is imperative that this credit score is improved before applying for a home loan.

Improve your credit score before applying for home loan

Should I Opt for Festive Season Loans?

Isn’t festive season the best time to cash on impulse? Consumers are already spending heavily either shopping, taking a holiday or planning a lifestyle upgrade. That’s why discounted loan advertisements become pretty hard to avoid! Before you opt for the festive schemes, offers and loan discounts, just keep your credit score and this quick read to in mind!

What’s in it for me?
Festive loans give you special waivers in the processing fees or lower interest rates for the loan tenure. Banks tie-up with several merchant segments like travel, lifestyle, automobile, real-estate, etc. to get you quick disbursement on loans for travel & holiday packages, home appliances, fashion, electronics, and accessories! Banks are thrilled to offer personal loans or credit cards within a day since they are unsecured, i.e. do not require collateral, which makes them easy to offer!

How does it work?
Loans are for a genuine requirement and a liability that needs to be paid back. The festive offers do make a lucrative bet, but make sure you read the underlying terms and conditions before riding on the debt wagon.

Related Read: What is a no-cost EMI and does it work in your benefit?

Need to Know!
Recently, RBI has clarified that the term “Zero interest” or “No-cost EMI” does not exist as banks or lenders only earn from the interest rates. So, they either charge you a lump sum when you are availing the loan, or give you a higher monthly EMI, perhaps charge you a higher processing fee. You will find kiosks outside banks offering ‘quick loans’, requesting you to fill up the application forms.

When you apply for a loan, the lender has the authority to pull out your credit report to check your loan eligibility. This is called a ‘hard inquiry’ and can knock off a few points of your score. If you do have to borrow this festival, make sure you don’t apply for several festive loans at once, anticipating which one will go through!

Good to Know!
Millennials today survive on debt, quite literally! Either with an ongoing car loan or a home loan, or at least a credit card. Paying in EMI’s instead of a chunk out of your corpus seems easier to sustain your lifestyle needs, but it’s important to know that you only own things when you pay them off completely. In the festive mood, loan discounts may seem like a savior in need, especially with living costs going through the roof. Ensure you do thorough research on the lender options and the type of loans you can apply for before you make a hurried application.

What should I do?
It is not uncommon to make big purchases during the festive season but it is essential that you know how much you need.

Analyze
Analyze your personal financial goals and the benefits it actually gives you instead of making low prices the sole reason to apply for it. Do you really need a car upgrade? Is a foreign journey on your to-do list? Have you been waiting to buy a home? Having a credit mix of loans, credit cards and other credit lines can boost your credit score and thus your creditworthiness but only if you make timely repayments on them. Hence, planning your finances for the credit repayment tenure is the first step towards managing debt well.

Prepare
Take a quick informative tour online and prepare the documents you require for the loan application like income statements, tax receipts, and identity proofs. Check how much income you are left with after you pay your credit card dues, household expenses and taxes to estimate loan EMIs beforehand, making it easier to pay off without hurting your monthly budget!

Check
Once you are ready with your research on lenders and loan types, give your credit score a quick check to confirm loan eligibility that’ll help you avail it effortlessly. A credit score is an important tool that lets lenders study your credit history through an automated report that determines your creditworthiness. If you are worried about a low score, here are ways to repair it before you apply.

You can check your free credit report with CRIF and prepare to make the festive season memorable by fulfilling your wishes!

How Different Types of Credit Can Boost Your Credit Score?

A credit score is calculated taking several factors into consideration; a statistical account of your creditworthiness & credit history. Borrowers are required to have a credit score of 700 or above to have the freedom to avail loans & apply for credit cards to meet their financial requirements.

Credit mix is basically the types of accounts that build your financial history and as a result, your credit score. Credit types that can be part of a credit mix include credit cards, mortgages, loans of any kind (student, personal, car or home). It constitutes 10% of the credit history as it indicates the different kinds of credit an individual can handle & repay back.

There are a total of 5 factors that affect your credit score:

1. Payment history: 35%
2. Amount of debt owed: 30%
3. Age of the credit history: 15%
4. New lines of credit: 10%
5. Credit mix: 10%

Related Read: Let’s answer 5 frequently asked questions about a credit score!

Different types of Credit you can have:

Credit is available for borrowers in 3 main categories:

– Revolving credit: These are credit lines with a monthly credit limit. It gets renewed as soon as you clear the previous dues. A borrower is allowed to utilize as much of the credit limit as per requirement in one go or in multiple transactions. It includes credit cards & home equity lines of credit, not very common in India.

– Installment credit: These lines of credit have a set installment to be paid across a predetermined time period. The loan payments are listed in an amortization schedule. As the borrower goes on to pay the installments one-by-one, it keeps reducing from the amortization schedule in the loan agreement. This line of credit includes student loans, home loans, auto loans, mortgages, etc.

– Open credit
: A credit line that is preferred by a few. Open credit lets the borrower use a fixed amount which should be paid back in full every month it is used. This type of credit is usually associated with charge cards, and not credit cards.

If it is good, should you overdo it?
Diversity is encouraged in the world of credit for the borrower’s benefit, but it is not a hard & fast rule. You can have even one line of credit & ensure that you make timely payments to clear it. The fact that it constitutes only one out of 5 parts of your credit report can help you remain at ease but it will help you only as long as you are able to repay it on time.

Having a mix of credit basically clarifies a borrower’s image in front of the lender. It demonstrates the ability of the borrower to pay back different kinds of credit lines, indicating that you are responsible. The potential lenders will view in a brighter light & see you as less of a risk.

How can you apply this to your credit score?
Building a good credit score doesn’t limit to only picking up different lines of credit, but it also includes your timely repayments & other historical data. A major part of it is the credit utilization ratio!

Since revolving credit is one line that most borrowers deal with on a day-to-day basis, it is vital to keep an eye on your credit cards & home equity lines of credit. Another reason to pay close attention to it is that it determines your credit utilization, which constitutes 30% of your credit score.

Repay your credit card dues each month & ensure that you keep a low balance on it to keep your credit utilization low, as a result of which your credit score will strengthen. Credit card limits keep increasing gradually and often land borrowers in debt. So make sure you don’t fall in that trap & maintain good credit utilization.

Take a look at which credit lines you’ve used & what can be added to your report by grabbing your CRIF’s Personal Credit Score here.

Will Settling a Debt Affect My Credit Score?

When we take up a loan, our first intent is to pay it back and clear it fully, but it also happens that some of us may not be able to repay the loan EMIs on time. In such a scenario, it becomes very difficult to decide what one must do. There is, however, one way that can get you out of the debt, which is by settling it with your lender. If you & your creditor reach an agreement, then you can settle the debt for a lower lump sum payment. So, you basically put an end to the debt by negotiating on the total loan amount. Hypothetically, say you have a loan of Rs 10 lakh and you are unable to pay the loan EMIs, then you & your creditor can enter an agreement to settle the debt for a one-time payment of Rs. 2 lakh.

Related Reads: 5 Practical Steps to Get You Out of Debt

Better than “Unpaid” but worse than “Paid as Agreed”
Your credit report maintains records of your loan EMI status & history of credit card dues. It lists whether you have paid your monthly dues & loan EMIs on time, before or after the due date. So, when you are done settling your debt with a lump sum payment, your creditor updates the status of the loan as “Settled” or “Paid Settled” on your credit history. It is definitely better than an “Unpaid” status update on your credit report, but it is not as good as a “Paid in Full” status, which would’ve been updated had you paid the full amount. Any status other than the latter can hurt your credit score.

In addition to settling your debt, there are other factors that can have an impact on your credit score. But, the degree of the impact of each factor on your credit score varies & cannot be identified accurately. Debt settlement can, nevertheless, have a noticeable impact on your credit score! When you opt for debt settlement, the account is not removed from your report immediately. If you made late payments while you were paying the loan EMIs, then this account will reflect on your report as a factor for 7 years, starting from the first date of late payment.

Lay the bricks of rebuilding your credit score after debt settlement
The credit score is a dynamic number that keeps changing depending on your financial activities & any score above 700 is considered to be a good score. If you are in a situation of not having paid your loan amount on time & this has affected your credit score, then you must start taking measures to rebuild it:

1. Ensure timely payments of all your dues hereon. In fact, make use of the auto-debit feature on your net banking platforms, so that money is automatically debited from your account as soon as you receive your monthly income. Your payment history is the most important component on your credit report.

2. Monitor & control credit utilization no matter how high is your credit card limit. Make it a point to set a limit of utilizing only 30% to 40% of your credit limit to keep your expenses under control. You can even set daily & monthly spending limits on your credit card. So, you can use this feature as well to make sure you don’t overspend & land in another situation of excessive debt.

3. Keep an eye on your credit score to see its progress. Tap the entries of all your transactions & evaluate your risk factors. Your report consists of the risk factors you are exposed to along with your score & this tells you what you must start improving first to ensure a healthy credit score.

Begin rebuilding your credit score by getting your free credit report from CRIF!

5 Easy Ways To Repair Your Credit Score – An Infographic

If your credit history is not where you want it to be, you’re not alone. Improving your credit scores takes time, but the sooner you address the issues that might be dragging them down, the faster your credit scores will go up. You can increase your scores by taking several steps, like establishing a track record of paying EMI’s and card dues on time, paying down debt and checking your CRIF credit report regularly.

Nov-Infographic_5 easy ways to Repair your Credit Score

What Is The Difference Between Accessing Credit Score From a Bank and Online Websites?

Your credit score is a reflection of your credit habits as it provides the details on your outstanding loans and credit cards along with the outstanding and overdue amounts. Your credit score can be accessed through any of the following modes:

1. By Self – You can check your credit score through the websites of any of the 4 credit information companies operating in India. CRIF Highmark is the youngest of the lot and you can access your credit report by visiting the link – http://cir.crifhighmark.com. You can check your credit score through CRIF HighMark for free once every year.

2. By a Bank/ Lending Institution – Banks generally have an access to the credit information database being maintained by Credit Information Companies. So, when you apply for a loan or a credit with a bank or a lending institution, it will typically access your credit report to know your credit behavior and the health of your outstanding loans and credit cards.

3. By Loan Marketplaces – Loan marketplaces like BankBazaar, PaisaBazaar, IndiaLends etc. generally offer consumers a facility to compare and apply for loans or credit cards from different banks through a single application. In this process, these platforms may also access your credit score to check your eligibility for loans/ credit cards. They may also offer you to check your credit score free from the credit information companies they would have partnered with. Since the facility is offered free, many visitors may be tempted to use such services. However, it must be noted that such marketplaces may retain your data that you provided directly on their website as well as what is sourced from credit information companies with your due consent. All such data can be directed to remarket more products to you in future, and also to build internal analytics. As such, you must also carefully read the terms and conditions that you consent on such lending marketplaces to know how and what will they use your data for.

With regards to the safety of your data, it is worth noting that your data is generally transmitted through secure servers in an encrypted form when your credit score is checked across the portals. As such, the information kept in credit databases with credit information companies or in transit while being checked by banks/ lending marketplaces is safe and secure.

However, you must also be aware that there is always a difference between checking your score by self or through banks. Whenever your credit score is checked for a prospective loan/ credit card application, it is also recorded as a credit inquiry in your credit report. A higher number of credit inquiries reflects you as a credit-hungry individual to the bank and also has an adverse impact on your credit score. Instead, you may check your credit score directly through credit information companies and avoid any adverse impact on your credit score. Check your credit score with CRIF HighMark for free once in a year by clicking here.

Ways To Get Yourself Out Of Credit Card Debt – An Infographic

Just as it takes time and determination to climb a mountain, it takes time and determination to conquer a mountain of debt. But if you’re equipped with the right knowledge and tools, the journey to conquering that mountain can be relatively smooth. So, here are some practical ways you can quickly tackle your maxed out cards and take your first real steps toward getting out of debt and maintaining a healthy credit score.

Credit Score Ranges and What They Mean? – An Infographic

Calculated with a formula based on variables including payment history, the number of accounts, and the amounts owed, your credit score may affect the interest rate you pay to a lender and even make the difference between a loan being approved or declined. Here are the basics of what scores within a variety of ranges may mean for your borrowing future.

Credit score ranges