Missed an EMI? Here's how it impacts your credit score and recovery tips

A 30-day delay can cause a substantial drop in credit score, lowering your score by 90-100 points and even more

Missing an equated monthly installment (EMI) payment can have significant consequences on your financial health, particularly on your credit score. A credit score is a crucial metric that lenders use to assess your creditworthiness, and any default can lead to a substantial drop in this score. We will explore how missing an EMI affects your credit score and provide strategies to recover from such setbacks.

 

Impact on credit score

 

Credit score, typically ranging from 300 to 900, reflects the ability to manage debt and repay loans on time. A good credit score is generally considered to be above 750. A 30-day delay can cause a substantial drop in credit score, lowering the score by as much as 90-100 points and even more. It may also stay on credit report longer, making it challenging to secure future loans easily.

 

Effective January 1, 2025, the Reserve Bank of India (RBI) has mandated that lenders update credit bureau records every 15 days instead of the previous monthly cycle. This change aims to provide a more accurate and timely reflection of borrowers’ financial activities. It also means that missed payments now impact your credit score faster, making it crucial to maintain timely repayments.

 

Additionally, missing an EMI can also lead to late payment fees, increased interest rates, and potential legal action. If the loan is secured by collateral, such as a home or vehicle, the lender may have the right to repossess the asset.  

 

“To bounce back from this loss, it is important to act proactively, immediately contact your lender to convey your position and apply for goodwill adjustments, which can assist in deleting late payment comments. Timely payments in the future are a must; set up automatic payments, if possible, to prevent future EMIs being missed. Furthermore, check your credit score periodically to monitor progress and ensure a proper credit utilisation ratio,” said Rajesh Katoch, CEO, EZ Capital.

 

“To recover from a missed EMI, act quickly. Pay the overdue amount as soon as possible and communicate with your lender. Some lenders may offer options like restructuring the loan or a short-term grace period if the missed payment was due to a financial emergency. Setting up automatic payments or reminders can help avoid future delays,” said Adhil Shetty, CEO of Bankbazaar.com.

 

“Rebuilding your credit score takes time and consistency. Ensure all future EMIs and credit card bills are paid on time. Keep your credit utilisation ratio (CUR) below 30 per cent and limit new credit applications. Regularly check your credit report for errors and dispute any inaccuracies. Remember, with timely action and financial discipline, it is possible to recover and maintain a strong credit profile despite a poor record in the past,” Shetty said.