Any amount outstanding towards a loan is termed as ‘Past due debt’, i.e instalment, either partial or whole, not paid as per schedule on the due date. A late fee is charged on this outstanding amount as per the terms & conditions of the order. If you want to apply for a personal loan, then apart from credit score, you should be also worried of past due debt that you missed to pay for. This will help you with improving your credit worthiness.
Here is an illustration to consider:
Let us assume that you use a credit card to buy and procure things you require for your office. The credit card company sends you a bill for Rs. 5000. It states that the minimum amount of Rs. 100 can be paid for continuation of the card. Let’s say that 20th of the month is the due date, but somehow you fail to pay the amount. This minimum balance of Rs. 100 is the past due debt.
Now, in your next bill, the credit card company will add the past due debt to your minimum payment due. The company will also charge you with a late fee as per the contract you entered into.
Delaying Loan Repayments and Its Impact
The same thing applies to a bank account. However, in this case, it is decision of the financial institution to penalise you for any past due in case you have a healthy relationship or connections with the lender. This is what is known as relationship based payment terms.
Regardless of whether you have a written agreement or relationship based terms, your past due debts will certainly upset your credit scores depending on the period of non payment of the outstanding amount. A delay of few days will have a minor effect like attracting only a late fee, whereas a delay of 30 days or more will be adverse.
Your case may be reported to the credit bureaus by your credit card company. It is to be noted here that any unfavourable credit score makes a mark on the credit records for a period up to seven years.
How to Deter Missing Payments?
The credit bureaus on their part investigate in their own way, all your personal & occupational or business financial dealings especially the loan accounts, etc. Before assessing your credit score, the bureau also goes into your repayment details with regards to any credit or loan accounts.
Obviously, when you are in need of funds, say personal loan, you are expected to have a high credit score, more so because such borrowings are unsecured funding. It is rightly said that no problem is without a solution. The past due debt affecting your credit file can be overcome by one of the following recourse:
- Pay all dues immediately
- Settle for an amicable payment schedule
- Configure your payments with automated payment methods for avoiding penalty
- Merge all your loan or debt accounts into one so that you can monitor the repayments