How Pending Dues Affect Your Credit Score
Your overall credit score can get affected whenever you make late payment on your loans, mortgage or credit card. Whether you are just late by one day or one month, not paying the bills by the due date can affect you for years to come. Whether banks, credit card issuer or online lender, they will consider your past payment history when evaluating the risk involved in offering you loan or credit card approval. A history of on-time repayment will suggest that you are responsible and a reliable borrower. On the other hand, a history of late payment will suggest that you may not pay back the debts and it could result in loss to the credit issuer or bank. Let’s check out more about how your pending dues can affect credit score.
Effects Of Pending Dues
You will be charged late fee whenever you delay in paying your credit card bills and loan dues. The late fee charged will be added to your next billing statement. If you miss the due date continuously, you can incur additional fees. This can make the loan expensive and you may end up paying much more than what you actually borrowed.
The interest rate will rise every time you fail to make payment on time. Lender will increase the interest rates to penalise and you may end up paying significantly more in interest on the outstanding balance. Paying credit card bills late can also forfeit the promotional rate and compel you to pay the default interest rate.
Your pending dues will end up on your credit report. All three credit bureaus will be notified every time you miss a payment or make late payment. Such remarks on your credit report can stay for up to seven years. Such reports will gradually decrease your credit score. Typically, your payment history accounts up to 35% of your credit score, which makes it one of the single most important factors in calculating your credit score. A single late payment can considerably lower your credit score.
Pending your dues could lead to more damaging credit actions, such as lenders may sent it to collections and neglecting the accounts until it becomes delinquent. Such reports will remain on your credit report for seven years and cause you more damage than a late payment.
What To Do When You Have Made A Late Payment
The sooner you pay your bills, the better. The longer you take, the more damaging the effects of a late payment will be on your credit score. If you have made a payment after the due date then you can attempt to do the following-
- You can request to remove the late payment fee. If otherwise you have a good standing with the bank you can get in touch with them and request to forgive and remove the late fee.
- If due to late payment, the interest rates have gone up then you can work to reset your penalty interest rate back to the pre-penalty rate by making six months of on-time payments. So, once you start making timely payment it will become easy for you to get back on track.
- Keep a track of the due dates and pay all accounts on time. Even if you may have missed a payment and that has affected your credit score, the best thing that you can do is to continue making on-time payments on all of your accounts. After making consistent on-time payments for a few months your credit score will slowly improve. The easiest way to prevent late payments is to set up automatic payments and set email or text reminders.
No matter if you missed a payment and if it has affected your credit score, you should always keep a track of your overall credit health. For that you should regularly check your credit reports. You can collect your free credit report from all three credit bureau once in a year. Once you have understood the various factors that can affect your score, it is necessary that you keep an eye on your payment history along with other important aspects. Making timely repayment will help you to build good credit history and improve credit score over time.