How missing just one EMI can slash your credit score, and what to do next

Missing an Equated Monthly Instalment (EMI) payment even by a day can result in serious fines along with a blow to your credit score. Lenders are tightening their policies, and it is crucial that borrowers understand the effects of late payments and how to avoid them.

Concept of late payment and associated fines

Late charges are also variable, depending on the lender and the specific loan terms. Banks, for example, may charge late fees and interest on the outstanding balance. These charges accumulate very fast, and it is even more challenging to pay off your debt. New RBI regulations aim to make accounts more transparent by designating them as 'past due' only when they are overdue for more than three days from the date specified in the billing statement.

For example: Taking Indian lenders for consideration, missing your first credit card EMI payment can lead to fines. Different banks have different rules and regulations in this regard:

• HDFC Bank: Charges ₹100 to ₹800, depending on the amount of late payment, along with interest charges of approximately 3.6% per month.
• Kotak Bank: Charges ₹100 to ₹1200, depending on the outstanding balance, along with interest of up to 3.75% per month.
• ICICI Bank: Charges ₹100 – ₹1,300 depending on the amount of late payment, plus interest charges of up to 3.75% per month.

Note: The charges discussed above are illustrative in nature. For the updated terms, conditions and charges, refer to the official website of the respective lending institution.

That is why, to save interest over interest, borrowers should strictly follow the repayment schedule and terms so that they do not suffer significant financial reverses in life and their investing careers.

Furthermore, the charges applicable, as shared above, are only indicative and are subject to change depending on the terms and conditions of the respective banks. For complete details, consider reaching out to your lending institution.

What is the impact of missing EMIs on your credit score?

Missing an EMI can severely scar your credit score. The closer the default date, the higher the damage. Now, credit scores generally depend on the last 36 months of credit history, so it is essential to act quickly before maximum damage occurs. Paying the missed EMI as early as possible and setting up auto-payments can prevent subsequent misses and save your credit score and credit utilisation ratio from more damage.

Reaching out to customer service

The first step you should take to resolve the issue is to contact your lender's customer care if you have defaulted on an EMI. Open and prompt communication in this regard is crucial. Most banks have policies that waive late fees or offer temporary relief, although this is often at their discretion.

Take HDFC Bank, for instance- it offers full 24/7 customer care assistance so that any issue is settled at the earliest. It would be beneficial to do just that to avoid further interest penalties and maintain a healthy credit profile.

Furthermore, it is critical for credit card users to keep in mind the risks associated with credit card usage to stay better equipped for dealing with such credit instruments. Credit cards come with the following risks:

1. High interest rates: If the credit card is not used responsibly, then the user can face high interest charges, fines and even legal difficulties.
2. Overspending and debt cycle: Credit itself appears lucrative, which is why users sometimes overextend themselves and use it to cover lavish expenses. Such a habit must be curtailed as it can force the credit card holder in a debt cycle.
3. Impact on credit score: In case the credit card user misses payments, it can seriously damage their credit score and complicate future loans and credit cards.
4. Fraud and security risk: Time and again, credit card users are tricked into sharing their personal details, such as OTPs and CVVs, and through the same scammers, carry out elaborate financial crimes. This must also be considered before proceeding with credit card usage.

Conclusion

While it can be stressful to receive an EMI fine for the first time, timely communication with customer care helps mitigate the impact. Moreover, understanding the charges and their impact on your credit report will also be useful for effective financial management. With anticipation and a timely response, bad debts can be avoided in the long run.

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