Missed multiple personal loan EMIs? Here’s what it does to your credit score

Personal loans can help an individual meet serious financial challenges, such as medical costs, educational expenses, and home renovation costs. Given that these loans help in difficult times, it is still important for borrowers to understand how personal loan EMIs work and the importance of repaying them on time.

Remember, missing personal loan EMIs can make the entire borrowing experience unpleasant and can even result in serious legal consequences if due attention is not paid. Initially, missing just one EMI may seem manageable; however, missing several can seriously damage your credit score and overall credit profile.

Such behaviour can cripple and complicate an individual's future borrowing potential, making it difficult for them to secure home loans, personal loans, and credit cards. Keeping these factors in mind, here are the possible consequences that one can face if they miss multiple personal loan EMIs and fail to take remedial action.

Immediate impact on your credit report

When you miss multiple personal loan EMIs, the respective lending institutions report the delay to prominent credit bureaus such as CRIF High Mark, CIBIL, Experian, and Equifax. This delay gets recorded in your credit profile:

1. Even a 30-day delay is recorded as days past due (DPD) and remains on your credit profile for months.
2. Repeated delays can severely damage your credit profile and lower your credit score. Such behaviour will permanently categorise you as a risky borrower, making future borrowing difficult.
3. When delays extend beyond 90 days, they are categorised as defaults. Such an extended delay can result in your personal loan being classified as a non-performing asset (NPA).

A low credit score, i.e., any score of less than 650, is a clear signal of financial risk for lending institutions. Such a score will make lending institutions wary of approving future personal loans or credit cards, and even if these credit products are cleared, they will come with high interest rates and strict repayment terms.

Long-term financial consequences

Multiple missed personal loan EMIs don’t just temporarily lower your credit score; they can also permanently damage it. In fact, the long-term damage is quite significant:

1. Your repayment history, which is fundamental, is severely weakened by such behaviour.
2. The negative mark on your credit report might stick around for the next 2-4 years.
3. Any improvement in your credit profile after a missed EMI is going to be slow and take effort.
4. Personal loan rejections and credit card denials can become common if steps are not taken to resolve the situation.
5. In extreme cases, when personal loan recovery becomes difficult, forced recovery or very serious legal action can follow.

How can you recover from the damage?

You can definitely improve from a situation like this. Still, keep in mind that the improvement will be gradual; it will take time and devotion. To accomplish the same, you should clear outstanding dues, avoid further delays and maintain consistent repayments over time. This way, your credit score will improve slowly but surely.

In conclusion, before taking any new personal loan, you should analyse your repayment capacity diligently. Personal loans are unsecured, i.e., they generally come without collateral and often carry high interest rates, penalties, and processing fees.

If not handled properly, they can strain your cash flow quickly, which is why you should carefully consider all pros and cons of borrowing and consult a certified financial advisor before committing to any new form of credit or debt.

To check your credit score, visit here.

Disclaimer: MintMoney 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 score. MintMoney 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.