The Sin of Late Payment

Wouldn’t it be great if missing a payment once in a while was no big deal? With the busy schedules these days, it really is easy to forget dates…I mean due dates.

But sadly, it is no casual matter and it is a big deal. And the big deal is that late payments hurt…your credit score and more. Read on and I am sure you would figure out for yourself.

Late Fees – This is just the first one!

Better late than never is a passé…its better on time than late! If you pay your bills a single day after the scheduled due date, then be ready to pay the late payment charge. In case of credit cards, it either would be a fixed amount or a certain percentage of the minimum amount due. In case of loans, you would be charged with a fixed amount as penalty for paying late plus interest on the delayed payment.

High Interest Rate

Here is the second one…your interest rates could be reset to a higher level. Your late payment or rather series of late payments could have just cautioned the bank to cover its risk of lending to you. Charging you a higher interest rate is one way of how the bank would minimize its risk.

Credit Report

And if you thought that the story of your late payments is known only to the bank then, well, here’s a surprise! The credit bureaus which store and update data of all borrowers also have a record of your payment history. Your credit report would reflect the fact that you have been delaying your repayments. It shows your servicing inability and acts as a warning signal for any lender that you are planning to apply for a loan. Even a single recent delayed payment can be a possible hindrance to your future loan or credit card application.

Credit Score

The algorithm used by credit bureaus to calculate credit scores also factor in late payments. Do not be surprised if you have a low credit score in spite of having a great credit report. In the end it is all the number game!

Loan Approved or Rejected

The bank you have applied to would evaluate your credit worthiness based on your credit report and score. Whilst late payments are a sure negative – recency, frequency and severity matters. Besides, it also depends on the lending policies of the bank – aggressive or risk averse! Here all you can do is hope for the best since little can be done as far as the lending policy of the bank is concerned.

But you can minimize the possibility of rejection by always paying on time – and finally a virtue!

ABOUT THE AUTHOR

Satish Mehta is the Founder and Director of www.credexpert.in – a credit and debt counselling company that provides end to end customized counselling to individuals by handholding them through their credit life cycle.