Personal financial management is a critical component, and prompt repayment of your loan's equivalent monthly instalments (EMIs) is key for keeping your credit score high. The Credit Information Bureau (India) Limited (CIBIL), which keeps track of people's and companies' credit histories, evaluates credit scores.
If you've fallen behind on your EMI payments, it might negatively damage your Cibil score and your creditworthiness.
“A lender will often examine your credit score when you apply for a loan or credit card. Loan acceptance is more probable for borrowers with credit scores of 750 or above. Additionally, several banks have connected credit ratings to their lowest interest rates. Credit ratings have gained significance in the modern world as more employers and recruiters examine them before employing prospective workers, according to Adhil Shetty, CEO of Bankbazaar.com.
Experts claim that even one late payment will lower your score, and that it would take two to three quarters to restore it.
“If a payment or due date was missed, you may wish to automate the procedure moving forward so that the payment clears on a set date far in advance of the subsequent due date. All invoices and payments should be set up for auto-pay or reminders so that the person doesn't forget to make them in the future. Ideally, wait a few months before applying for a new loan or credit card. Keep your credit card usage percentage as low as possible—no more than 30%—if at all feasible. Over the next several quarters, all of them ought to help you raise your score, Shetty continues.
Missed EMI payments' effects on your Cibil score
The predetermined monthly payment you must make to the lender in order to repay your loan is known as the EMI. Missing EMI payments indicates that you are in default on the loan, which will negatively affect your credit score and be documented in your credit history.
A Cibil score spans from 300 to 900, and one should aim for a score of 750 or more. Your credit score might be lowered by 50–100 points for each EMI missed, depending on the kind of loan and the amount owed. Additionally, if the default persists for a long time, it can result in legal action, which might lower your credit score even more.
Methods For Restoring Your Cibil Score If You Missed EMI Payments
To prevent additional harm to your credit score, it is crucial that you take remedial action if you have fallen behind on your EMI payments. Here are some suggestions for improving your Cibil score.
Make sure to pay all of your obligations on time, including bills and EMIs. Your credit score may suffer if you make payments late or skip them altogether.
Reduce your existing debt: Your credit score may also be negatively impacted by high credit utilisation, or utilising a large portion of your allotted credit limit. It is thus advised to maintain your credit usage below 30%.
Run a credit report check: To be sure there are no mistakes or irregularities that might be harming your credit score, check your credit report on a regular basis. Report any inaccuracies you notice to the credit bureau so they may be fixed.
Close unused credit accounts. Having an excessive number of credit accounts will hurt your credit. To raise your credit score, it is thus advised to terminate any unused credit accounts.
Use credit wisely: Refrain from going into too much debt or making irrational purchases using credit cards. Your credit score might increase over time if you use credit properly.
Ask your bank for a repayment plan: It is advised that you ask your bank for a repayment plan if you are having trouble paying off your debts. Numerous lenders provide flexible repayment choices, including extending the loan term or lowering the EMI, which may help you pay off your debts over time and raise your credit score.
Anant Ladha, founder of the financial advising company Invest Aaj For Kal, advises that you might send a letter to your creditor outlining your reasons for paying late. Request a payment extension and reassure them that it won't happen again. Your creditor must update your credit record if they do agree to forgive the late payment.
Missing your EMI payments might have a significant negative effect on your creditworthiness and Cibil score. As a result, it is advised that you avoid doing anything that might harm your credit score since it takes time to get it back to a healthy level.
It takes time to get a decent credit score even though continuously paying off your bills in a disciplined and timely way might help. It typically takes a minimum of six months for any development to be reflected, and it might take as long as two years to get an acceptable score. It is crucial to keep good credit throughout your life since your credit score is based on years of credit history.