It is easy to assume that every CIBIL score drop and missed EMI payment is recoverable. A missed EMI payment drops your CIBIL score by 50-100 points, but it is not always temporary. The main aim of CIBIL reporting is to enlighten lenders in making a lending decision. Payment history and repayment behavior make up the largest percentage of weightage factors–35%- that affect and calculate your CIBIL score.
The damage might not be permanent, but it can be long-lasting. A missed EMI payment stays in your CIBIL report for 7 years. A short delay can be recovered in a few months, but if the delay is more than 90 days, it becomes a Special Mention Account (SMA).
How to prevent missed EMI payments? How to rebuild and recover your CIBIL score after a missed EMI payment?
What happens after a missed EMI payment?
To understand what happens after a missed EMI
payment, you must understand important terms related to and sometimes displayed
in the CIBIL report.
EMI Buffer
EMI buffer is an amount kept in savings for
uninterrupted future EMI payments in case of financial adversity or income
loss. It prevents EMI bounces, penalty fee charges, and financial stress.
Days past due
Days past due indicates how many days an
installment bill or EMI is overdue. “000” means a timely payment, but higher
numbers signify delays.
Non-performing asset
A non-performing asset is when a borrower has
failed to make a bill payment for more than 90
days. This leads to a severe score drop of 75 to 100 points.
Standard
This means that the borrower makes regular
payments and the overdue amount is less than 90 days. This is a positive
indicator.
Sub standard
This is an account that has been overdue for
more than 90 days but less than 12
months.
Special mention account
These are classifications made by the RBI for
overdue accounts according to days of stress.
SMA-0: 30 DAYS OVERDUE
SMA-1: 31 - 60 DAYS OVERDUE
SMA-2: 61- 90 DAYS OVERDUE
Lender settled status
When the borrower and lender formally agree
to negotiate the overdue balance. It is only accepted on certain conditions,
like financial adversity. This affects future credit prospects like loan
approval.
Written off
This means that a borrower’s debt is marked
as loss and is no longer deemed collectible. This happens after 180 days of
non-activity.
ISS
It stands for “Income segment score”
or “internal status segment”, varying across reporting formats of the
lender. It is an internal process rather than a grading visible to the
consumer. This shows risky repayment behavior.
Doubtful
An account is deemed doubtful when it has
remained sub-standard for more than 12 months, and reflects high uncertainty in
recovery.
Closed account
A closed account is fully repaid and
closed. This leaves a positive impact on
the credit score and lender risk perception.
Missed EMI payments and Credit Score: Impacts
Defaulting on EMI can cause a fall in your
CIBIL score anywhere from 50-100 points, depending on several factors such as
delay duration, your current score level, and your repayment record. What doesn't
matter is the amount you borrowed. A missed payment on a ₹500 credit will
impact your credit score in the same way as a ₹5000 loan.
Key Factors of Points Drop After a Default
How many days your bill has been overdue and the intensity of impact are correlated.
● Default of up to 1-29 days late → Lesser impact, provided you rectify quickly.
● Default of 30-60 days late → Significant fall in your score; lenders view it as delinquency.
● Default of 60-90 days late → Serious effect; classified as high risk.
● Default of 90+ days late → Most severe status; classified as NPA (Non-Performing Asset)
Other factors and the nature of impact on credit score:
- High-score borrowers (above 750) lose more number of points (say 70-100) in absolute numbers due to higher potential of losses. Moderate score borrowers (650-700) may be relatively affected sharply owing to heavier weightage given to past negative history.
- Longer and cleaner credit history mitigates the fall. Lesser history period of credit suffers more in comparison, as a single default of EMI constitutes a higher percentage of your credit history.
- Late payments on credit cards impact more than in the case of loan EMIs due to an indication of stress on revolving debt. Secure credits such as home loans and auto loans are relatively spared if you pay EMIs immediately.
- First-time default causes more score drop than subsequent ones as lenders interpret it as abrupt behavioral change. Repetition of defaults within a short period magnifies the damage and leads to “settled/written off”.
Full payment of the loan amount → You restore your score within 6-12 months with consistent efforts.
Settlement/write off of the loan →
You sustain serious damage in the form of a lasting negative mark up to 7
years.
Consequences to face after a missed EMI payment
Remember that a delinquency is not always recoverable. In India, a missed EMI payment stays in your CIBIL report for 7 years. The severity of the delinquency and its impact grow over time if left unattended. Multiple delinquencies pile up to increase overall impact on your credit score.
- Your
loan eligibility and likelihood of being approved by a lender reduce after
a missed EMI payment.
- Your
interest rates are increased after this event as the risk linked to your
credit account has increased.
- Every
missed payment comes with a late fee, and your overall interest also
increases.
- A single missed payment suffers a 25 to 100 point drop. The drop depends on how good your score was and how long you took to repay the overdue amount.
How to prevent late or
missed EMI payments?
Prevention keeps you stress-free instead of
burdening you with the legal implications, penalties, and credit recovery in
the future.
Set up auto-debit or
reminders
It is natural to face financial troubles,
income loss, or simply forget a due date during a busier-than-usual week. For
such situations, set up auto-debit to never miss a due date, hassle-free and
stress-free. Set a reminder as an alternative to remind you a few days before
the due date.
Consider an EMI buffer
Save up money equal to one month's EMI
payment to ensure you have the funds ready in emergencies. Request an EMI due
date close to the day your salary is credited. This ensures that you have funds
ready to prevent any missed payment record.
Act fast
Check all your accounts to identify any
unnoticed missed payments. If you end up with a missed payment, repay it
quickly to lessen the damage.
Check credit report
Check your CIBIL report regularly to monitor
and maintain your credit score. This is a healthy credit habit, and look out
for any errors, duplicate entries, or wrongly displayed overdue amounts.
Conclusion
Missed EMI payments are not just short-term recoveries, but these marks will stay on your CIBIL report for 7 years. Just one missed payment can lower your score by 50-100 points.
However, the good thing is that you can recover by paying consistently and taking the necessary steps to ensure a good score. Having auto-debit, keeping a buffer for EMIs, and keeping an eye on your CIBIL report are the best safeguards to avoid missing payments in the future.
Please note: it is always easier to prevent something than to correct it. However, if you have missed a payment, act fast, pay off your dues immediately, and improve your CIBIL score.
FAQs
1. Why do credit card overdues
impact more than loan overdues?
Credit card debts are unstructured, unsecured
revolving debt with high compounding interest rates. These compound daily and
are revolving lines of credit rather than fixed borrowing terms. These also
come with high late fees upfront.
2. For how many years will my CIBIL score be affected if I have missed an EMI?
A missed EMI affects your report for 7 years.
Early misses (under 30 days) get recovered easily, while delayed payments over
90 days become NPAs, which take longer time to recover.
3. Will my CIBIL score be ruined permanently due to one missed EMI?
No. But your score will be reduced by 50-100
points. Possible recovery comes from quick repayment.
4. What is an EMI buffer? Why is it required?
An EMI buffer means that savings for 1-2 months of EMI are saved as an emergency fund to ensure payment in case of any issue in receiving salaries.
5. What happens if I miss EMI
for over 90 days?
My account will become NPA. Your score will be badly affected, and it will affect lenders.
6. What steps will help me to
build my CIBIL score after missing EMI?
• Repay overdue EMIs immediately
• Avoid loan applications for 6-12 months
• Maintain 100% on-time payment henceforth
• Look into your report and, if there is any
mistake, file a dispute
• Build a healthy credit mix of secured and unsecured loans
7. Is the loan amount
considered in the score drop?
No. Missing a payment on a ₹500 loan affects
my CIBIL score as much as missing a payment on a ₹5,000 loan.
