Missed EMI Payments? Here’s How You Can Mend Your CIBIL™ Score, Improve Your Creditworthiness

EMI (Equated Monthly Installment) is a term that is defined as a fixed amount that is paid by a borrower while repaying credit in installments. It enables one to pay off their loans or credit card expenses in small amounts on a monthly basis, making it easier for them to manage their finances.

However, missing EMI payments can have a negative impact on an individual’s credit score, making it difficult for them to access credit in the future. This article will discuss how you can mend your CIBIL™ score and improve your creditworthiness if you have missed EMI payments.

What is CIBIL™ Score

CIBIL™ (Credit Information Bureau India Limited) score is a numerical score that reflects an individual’s creditworthiness. It ranges from 300 to 900, with a score of 750 or above considered good. Lenders often use this score to determine an individual’s creditworthiness as a likelihood of repayment of a loan. A high CIBIL™ score increases the chances of loan and credit card approval, while a low score reduces that.

Impact of Missed EMI Payments on CIBIL™ Score

EMI payments contribute significantly to an individual’s CIBIL™ score. Missing EMI payments is considered as defaulting on a loan and it can have a negative impact on an individual’s credit score. The severity of the impact depends on the number of missed payments, the duration of missed payments, and the type of loan.

For instance, missing one credit card payment can cause a short-term impact only as long as it is paid within a few days of missing the due date, but if multiple payments are missed, then it can have a huge impact. Similarly, if one EMI payment for a car loan is missed, it might cause a minor impact only but if you miss multiple payments, it can cause a severe impact. Missing multiple payments will have a more severe impact on an individual’s credit score than missing payments for a short duration. The impact of missed EMI payments on an individual’s credit score can also vary depending on the lender’s reporting policies and the credit bureau’s policies.

Steps to Mend Your CIBIL™ Score

If you have missed EMI payments and your CIBIL™ score has been negatively impacted, here are 6 steps you can take to mend your score:

Check Your Credit Report

The first step in mending your CIBIL™ score is to check your credit report. Your credit report provides detailed information about your credit history, including your loans, credit cards, and payment history. It is essential to review your credit report to identify any errors or discrepancies that may be affecting your CIBIL™ score. If you find any mistakes in the report, you can raise a case with the credit bureau to have them rectified. Once it is rectified, the scores will automatically improve.

Pay Your Dues

The next step is to pay your dues. If you have missed EMI payments, it is essential to pay them as soon as possible. Paying your dues can help improve your credit score by reducing the impact of missed payments. It is essential to pay all your dues, including the interest and penalties. It is also helpful to set up reminders so that you do not miss the payments in the future.

Avoid Applying for Multiple Loans and Credit Cards at once!

Applying for multiple loans can cause your credit score to go down. When you apply for a loan, the lender checks your credit report, which results in a hard inquiry. Multiple hard inquiries can have a negative impact on your credit score, making it difficult to obtain a loan in the future. It is essential to apply for loans only when you need them and to limit the number of loan applications.

Maintain a Low Credit Utilization Ratio

Your credit card credit utilization ratio is the amount of credit you have availed of in comparison to your credit limit. Having a high credit utilization ratio always can impact your credit score – credit bureaus read it as the individual is always in need of credit. It is essential to maintain a low credit utilization ratio to improve your credit score. To maintain a low credit utilization ratio, you should avoid using your credit card for unnecessary purchases and ensure that you do not get close to your credit limit. It is good to maintain a credit utilization ratio of 30% or less, you can consider increasing your credit limit also to maintain a low credit utilization ratio. However, it is essential to use this option with caution, as a higher credit limit can also lead to higher debt if not managed responsibly.

Do not close Credit Cards

If you have old credit cards that you do not use much, you might think of closing them – but this will actually cause more harm than good. Because your credit history is based on how long you have been using credit cards, it is helpful to maintain credit cards for as long as it is feasible to do so. Your payment history is reported to the credit bureau and continuing to use an old card shows responsible behaviour over a period of time and this can help you to improve your credit score.

Maintain a Good Payment History

Maintaining a good payment history is very critical to improve your credit score. Therefore, it is essential to pay your credit card bills and loan EMIs on time and in full to avoid issues associated with missing payments and incurring penalties. Over time, this behaviour will help you build your history and reflect in your credit score.

Conclusion

A good credit score is essential to get approvals for loans and credit cards at favourable terms. Missing EMI payments can have a negative impact on your credit score, making it difficult to obtain loans in the future. However, by following the steps mentioned above, you can mend your CIBIL™ score and improve your creditworthiness. It is essential to check your credit report, pay your dues, maintain a low credit utilization ratio, maintain old credit cards, and maintain a good payment history to improve your credit score. By taking these steps, you can improve your creditworthiness and ensure that you are able to obtain loans and credit cards at favourable terms in the future.