Missed a home loan EMI? Here’s how it affects your credit score and what to do next
Missing out on paying a home loan EMI can dent your credit score and reduce your chances of securing personal loans, premium credit cards or other similar credit lines in the future.
With the increasing use of credit in the nation, timely repayments are crucial to maintain a healthy credit profile. In ensuring the same it is important for you as a borrower to keep in mind that even a single default can impact your creditworthiness.
According to leading credit bureaus, borrowers with scores above 750 may even see a drop of up to 100 points if an EMI is missed. Those with lower scores may be affected even more. That is why it is in the best interest of borrowers to be very careful with the repayment of their home loan EMIs.
How to fix your credit score after a missed home loan EMI
Lending institutions evaluate your credit behaviour over time not just based on a single instance. A missed EMI can be improved upon and corrected if you act swiftly and adopt a structured repayment approach. Taking the right steps early can prevent lasting damage to your financial credibility and repayment capacity. Here are five things you can do to improve your credit score after missing a home loan EMI.
1. Repay overdue EMI or settle with your lender
Promptly clear the missed EMI payments of your home loan at the earliest opportunity. In case full repayment is difficult, then discuss and negotiate a structured settlement plan with your respective lending institution to avoid further damage to your credit score. Keep in mind that honest and open communication are essential during times of financial difficulties.
2. Stay consistent with future EMIs
Timely repayments of your home loan EMIs, credit card bills, personal loans are key to rebuilding your credit score. To ensure that you achieve the same in seamless fashion, automate your payments or set reminders to avoid future defaults. Lending institutions value repayment discipline over extended periods of time.
3. Use credit responsibly and avoid new loans
Focus on limiting fresh credit applications until your credit score improves, also never apply for several different credit cards or personal loans in a very short period of time. New credit cards or personal loans add pressure on your credit profile and trigger hard inquiries, which can further bring your credit score down.
Atul Monga, CEO & Co-Founder, BASIC Home Loan says “Recovering from a loan default and rebuilding the credit score is possible, but it requires time and financial discipline. First, try to repay any outstanding debt, either in full or by negotiating a settlement with the lender. This will prevent further damage to your credit score.”
He further added, “It is equally important to be consistent and make all payments on time. Careful financial management and responsible credit usage play a key role in the recovery process. Ideally, avoid applying for new loans or credit cards until your credit score improves. You must also monitor your credit report regularly to identify and correct any errors, as inaccuracies can further damage your score.”
4. Monitor your credit report for errors
You can obtain one free credit report every year from any of the leading credit bureaus in the nation. To further strengthen your credit score, you should check your credit report regularly to spot errors, mistakes or unresolved issues.
If you find any discrepancies then be prompt with raising them to ensure your credit report reflects accurate information and data. Your credit report is nothing but your borrowing report card. The cleaner the credit profile and the higher the credit score, the better it is for an aspirational borrower.
5. Rebuild with a secured or low-limit credit card
If you are eligible, you can also consider using a secured fixed deposit backed or low limit credit card and repay in full every month. This will assist you in rebuilding a positive repayment track record without over-stretching your finances.
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Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
