How much will one late payment hurt your credit score


Every lender and increasingly even borrowers realize how payment history affects the creditworthiness of an applicant. It is said that late payment delinquency even if corrected subsequently, affects a person’s credit rating for 7 long years. However, late payment within thirty days of default does not damage the credit score though the lender will charge late payment fee and interest for the delayed tenure. Most lenders wait for 30 days before reporting such delinquency, to rating agencies though exceptions are made based on the relationship status of the borrower.
 Collateral free loans
In a typical car loan where the vehicle is hypothecated, missed payment of some instalments can lead to repossession. While some lenders have stipulated repossession before the loan turns an NPA (considered after three missed instalments in some cases),a car loan clearly goes delinquent to default status after 270 days or 9 months of missed payments. Repossession is done unless major remedial measures like adjusting the entire loan amount or at least the outstanding is done.

A 30 day delay in repayment is the first trigger for most lenders and if remedial steps are not taken by the borrower, a careful watch is kept and reported to the rating agency with a sizeable drop in the credit score so that the lender’s eligibility for any other loan gets adversely affected.

But then late payment need not be the end of the road for a borrower. There are a few remedial steps as under. 
  1. Clear the dues at the earliest- an obvious remedy. 
  2. Write a goodwill letter indicating difficulties due to medical or such pressing circumstances leading to the non-payment. These may be work and will definitely lead to a positive response if the past record of repayment has been exemplary. 
  3. Negotiate- the negative impact can be removed if a large amount is paid and a written agreement arrived at, indicating no penal action due to late payment.
  4. If nothing works, the borrower can dispute errors in reports, more to buy time and making up for the delays.
  5. If nothing works, the borrower can try to transfer high interest loans to other lesser interest bearing loans.
It is pertinent to note that late payments if reflected in the credit score can affect all other applications for personal loan adversely even if one has a decent credit score.
Some agencies known as Debt Consolidation Firms, agree to lend in spite of such adverse remarks though at a higher rate of interest. 

Sub-prime lending which ignored poor credit scores suffered and was majorly responsible for the crash of 2008.

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