It is essential to have a good credit score to get access to Best Credit Card Offers Online or loans at a concessional rate of interest. It is critical to maintain your credit rating. The most crucial factor affecting your credit score is your repayment record. Any late payments affect the credit score and cause it to spiral downwards. Missing a Credit Card payment can hamper your credit score.
What is a Late Payment?
Let us see what constitutes a late payment. We will also look at how banks and credit bureaus view late payments. Logically, any payment made after the due date is a late payment. The banks have the right to levy a late payment fee if you miss the payment by the due date. However, the credit bureaus have a different method of accounting for the late payment.
The Past Due Concept
Your bank or Credit Card issuer cannot report your late payment to the credit bureaus until it is 30 days past the due date. The Industry Standard for Reporting Account Delinquency stipulates that the credit bureaus use the Metro 2 Reporting Format. Let us look into this aspect, in brief, to understand how credit bureaus treat late payments.
The card issuer has to send a status code regarding your account to the credit bureaus on the reporting date. It reflects your account’s present situation. There is no problem if you pay your Credit Card bill before the due date. In case of a late payment, the credit bureaus consider it as current due if you make the payment within 29 days of the due date mentioned in the Credit Card statement. It constitutes a Code 11, the code for current accounts. The codes for late payments commence with accounts that are over 30 to 59 days past due. If the past due exceeds 60 days, it becomes a Non-Performing Asset. It is a different concept altogether.
Does it mean that you can keep delaying your payments up to 29 days every time? No, it is not advisable, because banks start levying late payment charges the moment you miss the payment by the due date mentioned in the Credit Card statement.
The Damage to Your Credit Score
As per the industry standard, you are safe if you pay the amount within 29 days of the due date. If you delay the payments for more than 30 days, your credit score drops down drastically. There is no set formula as such. It depends on various factors that include:
- Your present credit score
- Your history of payments
- The extent of delay in the current payment
Ironically, it hurts more if you have a high credit score and especially if you have an impeccable payment record. Consider this example. You have a credit score of 775 without any history of late payments. One single late Credit Card payment (more than 30 days) can reduce your score by nearly 105 points. It brings your score down to 670. In case the delay is more than 60 or 90 days, your score takes a more massive beating.
On the contrary, if you had a lower credit score in the range of 650, the damage will be comparatively less. It is usually in around 60 to 80 points. Anyway, your credit score takes a tremendous hit with even a single late payment of your Credit Card bill.
How Do You Handle Late Credit Card Payments?
The straightforward answer to this question is avoid making any late payments. Keep a due date diary handy. You have the smart phones today. Maintain a diary and set alarms that can alert you a week in advance. A better option is to set up an automatic payment system with your bank. All you have to do is to fund your account. The bank has the responsibility of deducting the payment from your account. Banks today have the facility of sending SMS alerts to your mobiles. Use them to your advantage and never miss a single credit card statement. Remember it will take a lot of effort from your side to bring the score back to the original level.
How Do You Handle the Late Payment Fees Levied by the Banks?
You should apply to the bank and request a fee waiver. Usually, banks agree to such requests if you are not a habitual defaulter.
The moral of the story is,“Pay the Credit Card dues on time to avoid hampering your credit score.” Maintain an impeccable repayment record.
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