Credit score reflects your creditworthiness and shows the lenders how reliable you are with credit. Credit bureaus give the highest weightage to your repayment history. This is why missed payments or late payments on your loans and credit cards will negatively affect your score. If you check your free credit score from any of the third-party platforms and go through the detailed credit report, you will find the ‘Days Past Due’ section on your report which is directly linked to late payments. How does it affect your score and your ability to avail new credit? Let’s find out.
What happens when your payment is late?
When you do not pay the minimum amount due on your credit card by the stated due date, it generally attracts late payment charges. Card issuers may also offer up to 3 days of grace period after the due date, in which case the late payments will start after you exceed the grace period.
The amount of late payment fee depends on the total balances that you are carrying on your card. For example, HDFC Bank charges Rs. 500 as late fee if your dues range between Rs. 501 and Rs. 5,000. However, if the dues are between Rs. 25,001 and Rs. 50,000, you will have to pay Rs. 1,100 as late fee.
Similarly, instalment debts like home loan, personal loan and car loan also offer some grace period after the due date. If you do not clear the dues for the month by the grace period, it will attract penalties.
How does a late payment show up on your credit report?
Late payments, whether on a credit card or a loan, show up in the days past due section of your credit report. This section indicates the number of days by which you have missed an EMI or credit card dues. If you have continuously made payments on time, the DPD section should show ‘000’ in all the months. However, say you missed your credit card dues for the last month by 25 days, the DPD section will be marked in red for the said month and show ‘25’ instead of ‘000’.
Sometimes, you can also see ‘XXX’ written in the DPD section. This is possible when the lender has not shared the payment records with the bureau and does not lead to a negative impact.
The DPD section contains your payment timeline for the past 36 months and helps the lenders check how regular you have been with clearing your dues. Occasionally missing payments for a few days might not influence your credit score as much as it would if you frequently miss credit card dues or loan EMIs.
Related Read: How to get free CIBIL Credit Score Report
How long do late payment stay on your credit report?
Late payments or any other negative markings stay on your credit report for seven years. However, it does not mean that your credit score will continue to be impacted for those seven years. If you continue to make future payments on time, your credit score should gradually improve. Also, as years go by, lenders will also not give as much importance to the previous late payments as they are more concerned with your recent credit history.
Consumers also wonder whether they can get a late payment removed from their credit report. However, it is not possible to do so. Such negative markings will stay on your report. Their impact, as said above, will reduce over time.
If late payment mistakenly shows up on your report, then you can raise a complaint with the concerned bureau to get it rectified. Such incorrect entries can also lead to a negative impact on your score but, when rectified, it should improve.
How to avoid late payments in the future?
The best way to improve your credit score and maintain an excellent score over time is to make disciplined use of your credit products and be regular with your payments. In order to stay on track with payments, you can:
- Set up standing instruction on your account for automatic bill payments
- Set up reminders on your calendar
- Read your credit report regularly and get inaccurate information corrected
- Spend only as much as you can afford to pay back on time
- If possible, set aside some funds for emergency or unexpected expenses, which can also be used to cover bills that go out of hand
Occasional delayed payments do not have a major negative affect on your credit score. However, frequent delays and missed payments can be detrimental for your score and could also make availing new credit difficult for you. Hence, you must always clear your credit card dues and loan EMIs on time to build and maintain a good credit score.