Most people try to put off financial work till the last minute or forget completely about it until it is either past the due date or if we are forced to do it. We do not at times take financial obligations seriously and do not fully understand the implications of this tardiness until it is too late.
This results in the non-payment of dues or late payment of dues which arises from taking loans or having credit card dues. Some of the major reasons for these are
- Forgetfulness:This is one of the major reasons given by defaulters that they had forgotten their due dates and didn’t pay their dues. Even though they have the means to pay their dues they forget about and later pay it with penalties
- Cash crunch:This is the case where a person does not have enough funds available to pay off their dues
These types of issues would have flown as banks could not collect details about a person from other banks and would just give loans or credit cards based on the data provided by the borrower. Now with the operations of Credit bureaus like Equifax it has become easy to track a person’s credit history.
The type of missed payment and later paying of dues within 90 days after due date is called a minor default. With this type of offence, your score will take a hit, but you can make up by paying future payments on time.
On the other hand, if you do not pay your bills after the 90-day period it becomes a major offence, due to which your credit score will take a big nose dive. With worse statements like “settled” or “written-off” against any credit account with hit your credit score hard. It will become almost impossible for you to get a loan or credit card in the future. It will take time and a lot of hard work to improve your credit score.
Whenever you borrow money from banks or NBFCs, they update your payment history to the credit bureaus. On the other hand, when a person applies for new credit, the lender can check about your payment history if you had already utilized credit in form of loans or credit card bills. Based on your performance, your credit score is calculated. This score will vary from bureau to bureau based on their calculation method and weightage given to various criteria. So, do not worry if your score is less with one bureau and higher with another.
Now let us see the factors that affect your credit score, knowing them is instrumental in understanding the importance of delayed payments.
- Payment history – The most important factor. How regular you are on your loan payments
- Amounts owed – Having very high debts or maxing out credit cards with dues continuing for many months will have a negative impact on your score
- Length of credit history – The longer the credit history, the higher the credit score
- Credit mix – With different types of loans available CIBIL, Equifax etc. needs a debt to determine your score
- New credit – Taking out credits within short time increases your credit risk
As you can see payment history is one of the most important factors when calculating your credit score. Without good credit score, you will not get credit, or you will pay more for the credit for which you could have paid much less with a good credit score.
When it comes to financial matters it is always best for a person to be prudent. One should never miss any dues and always make payments in full to make sure they do not suffer when they really need credit.