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Tuesday, 21 May 2013

Five things that happen with long term outstandings on your Credit Cards

As you may be aware, credit cards have heavy interests on the overdue payments or outstanding amount. It is always advisable to make your payments in the stipulated time as specified interest free credit period of 20-45 days as offered by the bank. In case you are not able to make payments for any reason or there is a long term expected delay due to personal uncertainties, you must rather look to settle the amount with the bank, though there is a long term impact on your CIBIL records but on a short term it is a benefit to both you and the bank. You could look to clear the remarks and ranking with CIBIL at a later stage when you have sufficient funds too pay off the remaining.

Five things that happen on payment overdues

1. Late fee: Your bank will charge a late fee. Your next billing statement will include a fee for the late/missed payments. Your monthly statement will include the late fees charged by the bank on delayed repayments. 

2. Finance Charges: Your interest rate will increase if you're delinquent for 60 days. Creditors don't just penalize you with a fee, they'll often increase your interest rate to the default rate. This is the highest interest rate charged by a creditor usually as a penalty. The higher interest rate increases your finance charges making it more expensive to carry a balance. If you make six months of on-time payments, your card issue is required to give back your pre-penalty rate.

3. Credit bureaus are informed: The credit bureaus are notified when your payment is more than 30-days late. An entry is added to your credit report and will stay for seven years.

4. Impact on Credit Score: Your credit score will drop. Because payment history makes up 35% of your credit score, late payments can have a significant effect on your score affecting your ability to get new credit in the future.

5. Finance Charges: Finance Charges are payable at the monthly percentage rate on all transactions from the date of transaction in the event of the Cardholder choosing not to pay his balance in full, and on all cash advances taken by the Cardholder, till they are paid back. Card Interest Rate is dynamic and will be based on the Cardholder’s usage and payment patterns and is subject to periodic review. The rate of finance charges may increase to a maximum of 3.35% per month.

Remember, profit making is the only motto for these banks having introduced credit cards is a way to make heave margins in profits for these banks. Credits or credit cards are an easy way for any bank to make profits by ripping off your money by way of penalties and interest charges.

If you have Long term Outstanding, that is say you have a balance of 40 k as balance outstanding and you are unable to make payment for consecutive 3 months due to personal circumstances as job loss or anything, you must rather look to settle the amount with the bank. Ask your bank that you want to go with settlement and your bank will provide a settlement letter to you offering you repayment of a lesser amount than the total outstanding in 2-3 installments. The bank may also offer you an emi facility to repay the outstanding in 4-6 installments depending on the case. 
                Remember, any settlement with the bank will definitely have a high impact on your credit score and records with CIBIL will get negatively impacted. You may later look to clear the remarks by paying the remaining outstanding after the settled amount, this may take a longer period to show your report as clear. On a long term, this is a potential positive step rather than keeping your account charged heavily with interests and landing up in uncertain difficult situation later.

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