Credit Score is a measure of your creditworthiness and is the primary way for a bank or a financial institution to decide if you should be eligible for any kind of credit in future. This score can range anywhere between 300 and 900. Higher scores are preferred as they indicate higher levels of creditworthiness.

You might be aware that a credit score is assigned on the basis of your behavior towards credit in the past. The factors that are counted towards determining a credit score are:

  • If your existing or past credit accounts are in good standing

  • Regular repayments on your credit accounts

  • Credit Mix

  • Credit Utilisation Ratio

  • Credit History

  • Hard Enquiries

Loan Approval & Rejection and the Relation to Your Credit Score

To be able to get approval on your loans or any kind of credit for that matter, the basic criteria is the need for a good credit score. The other factors like your income, repayment capacity, employment, etc come into play only once you clear the hurdle of clearing the test of creditworthiness (Credit score). So, it is very evident that a loan rejection is sure on the back of a bad credit score. Again, the approval and rejection may vary depending upon the kind and quantum of the loan you apply for.

For Ex: A personal loan, which is an unsecured loan, may require slightly higher standard of creditworthiness for a loan to be approved. Whereas, a secured home loan could be approved on a slightly lower credit score too, provided the borrower has a good repayment capability. Although one thing that needs to be considered here is both the loans require good credit score for approval.

But many of you have a doubt on if missing a credit card bill can result in your loan getting rejected.

We understand the link between the loan rejection and credit score. However, to know if missing a credit card bill can lead to loan rejection, it is important for us to know how credit cards end up affecting your credit score.

Additional Reading: Will Missing A Single Payment Affect My Credit Score?

Read on to know more.

Repayments on your Credit Cards and your credit score

Repayments on your existing loan accounts form the cornerstone of your credit score.  It is a well-known fact that you cannot expect to have a good credit score with delays or defaults in your repayment schedule.

But we are humans and it is possible that we make mistakes. At times, you might miss the date of EMI or at times other obligations may bring up obstacles that prevent payment on due date.

How does non-payment of credit card bill affect your credit score?

A credit card bill consists of 2 figures, one for Minimum Amount Due and one for Total Amount Due.

An individual has an option to pay one of the two.

Minimum Amount Due: Minimum amount due is generally 5% of the amount outstanding to be paid during a billing cycle (this is assuming the fact that all previous outstanding has been paid in full). When you pay your minimum amount due, do not be fooled into believing that you have no more obligations against the card.

When you pay the minimum amount due, you can save yourself from paying the Late Payment Fee on your credit card bill. For many cards, late payment fee is a function of the amount outstanding on your credit card account.

For Eg: On HDFC Bank Credit Card for outstanding between Rs 501 to `5000  a late payment fee of 400/- is charged while for bill between 5001 to 10000, it is Rs 500/-  for bills of Rs 10001 and above Rs 750 is charged.

However, it is good to know that even after paying the minimum amount due, the unpaid amount will continue to attract interest as decided by your credit card issuer.

Impact on your Credit Score

When you pay just the minimum amount due, your credit score won’t be directly impacted. But indirectly, paying the minimum amount due would mean your outstanding dues would come in the next month’s cycle, which would affect your next month’s utilization ratio, should you make further transactions. Hence, there could be a slight affect on your credit score if you exceed the prescribed utilization ratio of below 30%.

However, if you do not pay the amount and move on, the impact on the credit score will be grave and may take a longer time to clear the impact. Also, all your further payments on your cards are charged interest as soon as you incur them till the entire amount is paid back in full.

Read more on how interest on your credit card works here.

Therefore, paying just the minimum amount due may not be a very good idea after all.

Total Default in paying the credit card bill

What if you end up in missing even the minimum amount due and pay nothing towards your credit card bill? What is the impact on your credit score?

Default in payment of dues has graver consequences towards your credit score. And in addition, you would also have to bear the cost of late payment fee and payment of interest towards the amount that remains unpaid after the due date.

As with dues we earlier spoke about, any temporary delay in payment should not cause much of an impact on your score.

However, if you keep the amount unpaid for a longer period of time, then that particular credit card account has the danger of being considered as a negative account. You could have the same effect if you miss multiple credit card bills even for a shorter duration of period.

Additional Reading: All that you need to know about setting automatic payments for your credit card

Conclusion

A delay, however short or long, is a red mark on your credit report and is better avoided. Unless faced with a grave circumstance that makes payment of your credit card dues impossible, make every effort to pay off the amount in full each month.

A laxity may cost you your credit score and rejections on loans and other credit products.