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Does Delay in Paying Credit Card Bills Affect Your Credit Score?

Every bank has a customer database that reflects on the customer’s history of payments, their banking behavior and regularity in terms of payments. All these factors are major contributors to developing an individual’s credit score. More regular the individual is, in terms of payments, faster their credit score increases. On the other hand, there are several factors that can hurt your credit score and bring it down. The way you manage your credit cards, their transactions and billings is a crucial determinant of your credit score. Check out some of the elements you must address when it comes to credit cards to ensure that your credit score is maintained:

Credit Card Bill Payments

One of the most crucial things to avoid a low credit score is timely payment of your credit card bills. For every month, you have a minimum amount due that you are bound to pay on your card along with the total due amount. If the total dues are settled before the payment due date, you do not have to pay any additional charges. However, even if it is not paid on time, you don’t necessarily get charged with late fees. You have the option of rotating the finances by paying the due amount in the grace period offered post the last statement. Only once this grace period is over, you are charged with late fees. If the bank notices a higher frequency of late payments, there is a good chance that your credit score will take a hit.

Cancelling Credit Cards

Canceling credit cards may or may not have a negative impact on your credit score. The major determining factor for that is the debt on your card when you have applied for cancelling it. If you own a credit card that you do not use, you might want to get rid of it. In that case, if you have zero outstanding debts, the process of card cancellation happens smoothly without making the slightest dent on your credit score.

On the other hand, if you cancel your credit card while you have remaining payments, it will definitely affect your credit score negatively. Let's take an example: let's assume that you have three credit cards issued from the same bank which have the limit of 2000 each, that is a total of 6000. The dues on each credit cards are as follows:

  • Credit Card 1: Rs. 500

  • Credit Card 2: Rs. 400

  • Credit Card 3: Rs. 600

This is a total debt of Rs. 1500, that is 25% of the total amount of 6000. Now, when you cancel one of your credit cards it will impact the utilization rate and make it higher. If you canceled card no. 3, now your dues are Rs. 1500 but your total limit has lessened down to Rs. 4000. Your utilization rate will become directly 37.5% from 25%. Thus, a high utilization rate shows that you are not able to clear your dues on time. As a result, your credit score goes down.

So, it is important to take care of these aspects if you don’t want your hard earned credit score to go on a downward spiral.

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