How EMI Bounce Impacts Your CIBIL Score and Financial Health

It is common to handle your debt in the form of Equated Monthly Installments (EMI) owing to the simple ways to borrow today. However, as easy as it may sound, an EMI Bounce can have devastating effects not just on your credit but on your overall financial health. This topic covers the ways an EMI Bounce affects your CIBIL Score and why you should be familiar with the consequences.

What is EMI Bounce?

A case of EMI Bounce arises when a borrower cannot pay the EMI for a loan on the exact due date. This may be due to insufficient money in the borrower’s account or any other financial trouble. The EMI Bounce is therefore considered a default in the payment and is blackmarked by the lender to credit bureaus, including CIBIL Score.

How Does EMI Bounce Affect Your CIBIL Score? 

Your CIBIL Score is a three-digit number that reveals your creditworthiness based on your borrowings and repayments. Your score can be between 300 and 900, and a rating closer to 900 is always considered better. Once an EMI Bounce occurs, it affects the CIBIL Score highly.

• Immediately after the Report: If an EMI Bounce is reported to the credit bureaus, it can reduce your CIBIL Score by 50 to 100 points in the immediate term if the number of bounces is high. The primary reason is that lenders see a bounced EMI as a sign that a borrower is exhibiting poor financial behaviors and might turn delinquent.
• Long-term Impact: One EMI Bounce may not be a problem for your CIBIL Score, but if you are a frequently bouncing customer, it may long affect your CIBIL Score. If it does, your CIBIL Score might fall into the poor category over time, such that getting a home loan, a credit card, or some other form of credit might become a dream.

Is There an Impact on Your Money?

• Loan Approval: A poor CIBIL Score because of EMI Bounces leads to difficulty in obtaining loans or credit. CIBIL Scores are the most trusted credit scores for financial institutions, and if your score is not up to their mark, they might reject you for the loan or offer you high-interest rates.
• Costly Borrowing: If you do manage to obtain credit after an EMI Bounce, you may be charged a higher rate of interest. Working with high-risk lenders may come with higher interest rates and stricter requirements.
• Legal Proceedings and Collection: Frequent EMI Bounces can push lenders to take legal actions against you and recover the money. Your debt issue might end with a collection agency, which has the potential to make things harder on you. Accordingly, people could be more anxious and required to pay extra for these fees.
• Effect on Future Financial Goals: If your CIBIL Score goes down because of EMI Bounce episodes, then in the not-too-distant future, your financial goals, like taking a home or car loan, might get delayed or even jettisoned. Banks usually want a high CIBIL Score to lend huge loan amounts, so a poor score might come in your way of becoming financially independent.

How to Avoid EMI Bounce
In order to keep your CIBIL Score in good shape and to avert the negatives of an EMI Bounce, make sure that you:

• Look Over Your Bills: Ensure there will be enough money in your account each month. If you don’t want to worry that you will forget to make a payment, you can always set it up automatically with your payment system. If your funds are short, talk to your lender and look for alternatives to pay the EMI.
• Track Your Financial Fitness: Keep a regular eye on your CIBIL Score to track any fluctuations. If you see a change and the company is not rocking like it used to, make the changes immediately to get it back on track before things get really bad.

Looking forward

In summary, an EMI Bounce can affect your CIBIL Score and adversely affect your financial well-being. A low CIBIL Score can keep you away from credit, while repeated EMI Bounces can have far-reaching implications such as higher costs of borrowing and legal proceedings.

So, you’re going to want to keep good financial records and pay bills when they are due. Be proactive, and you can look forward to managing a credit-worthy future.