Are you looking to apply for a credit card in India? Well, the credit score will determine the chances of credit card approval. Issuers cannot offer a card to someone who is financially irresponsible. A credit line is offered only to individuals with a good credit score. Customers with a good credit score are more likely to deposit card bills timely. While making payments timely augments the credit score, some bills reduce the credit score. Responsible cardholders should be aware of the bills that can decrease their credit score. Read on to know the bills that harm the credit score.
Understanding the concept of credit rating in India
Credit rating is a symbol of creditworthiness. Many credit rating agencies assign a score to each user. They do so based on timely payments, credit history, and other factors. Paying all the bills on time will undoubtedly get you a good credit score. The credit score for an individual starts from 300. The credit rating for someone can go up to 900. However, 900 is considered a perfect credit score. From 700 onwards, the credit score is considered to be good. With the help of the credit score, a lender can analyse the repayment intention of the customer. Customers with a good credit score will always pay the bills timely over a long period.
Credit card issuers provide credit rating agencies with the required data. Customer payments, non-payments, late payments, and other information are forwarded to credit rating agencies. They analyse the data and offer a credit score to each individual. People can always check their credit scores online before applying for a card or a loan.
Credit score augments after making card bill payments timely. However, the credit score might not increase after not using any credit line. However, the credit issuer might offer services to someone who has never opened a credit line. It is because the person has no credit history, and the issuer cannot know their creditworthiness. To be eligible for higher credit limits and bigger loans, one has to open credit lines and make timely payments.
Bills that harm the credit score
Even a single payment/bill missed can hamper the credit score. The credit score does not only depend on card bill payments. Many other missed payments can harm the credit score. As responsible cardholders, people should be aware of the bills that can hurt their credit score. Some bills/payments that can hamper the credit score are as follows:
- Missed credit card bills will have a substantial impact on the credit score. The credit score decreases if the borrower misses the due date of a card bill. For the same reason, card users don’t miss the bill payment due date. Even if the entire credit bill cannot be paid off, at least pay the minimum due amount. By paying the minimum due amount, the credit score might not take a dip.
- Card issuers allow customers to convert the entire bill into affordable EMIs. After missing a single EMI, the credit score will take a dip. That is why an affordable EMI plan should be selected when making a purchase. Usually, one can choose an EMI plan for a hefty purchase via a credit card.
- Many people apply for a variety of loans like housing loans, education loans, or personal loans. For customer convenience, the lender distributes the loan amount into affordable EMIs. After missing out on EMI payments of loans, the credit score will dip.
The credit score will increase after making timely loans, card bills, and EMI payments. However, payment or non-payment of household bills has no connection with the credit score. Utility bills like electricity bills, water tax bills, or house tax bills will not impact the credit score. Now that you know about the bills that hamper the credit score find a way to make payments timely.
Understanding the dissimilarities between major and minor payment defaults
The credit score decreases after missing out on a bill payment. By how much will the credit score decrease for missing out on payments? Well, it depends on the days since the payment due date. Minor payments are bills that have been for less than 90 days. For minor payment defaults, the credit score decreases a little. Payments defaulted for more than 90 days are counted as significant defaults. For a major default, the credit score can drop significantly. Credit rating agencies know about all your payments and assess records based on major and minor defaults. Therefore, making timely bill payments is crucial and not defaulting on EMIs. After late payments, card users have to pay late fees and also suffer a decrease in their credit scores. Pay credit card bills and EMIs timely to boost the CIBIL/credit score in 2022!
Read Also: Essentials Hoodie