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How to minimise the damage of unpaid loans

It can be very upsetting to see a late payment showing up on your credit report. Your payment history makes up 45% of your credit score, so a late loan payment will negatively impact your score. Examples of loan payments that you should not miss are monthly car payments, PTPTN study loan, housing loan and credit card repayments. If you’re in a similar situation, don’t panic. There are a few simple things you can do to minimise the damage to your credit score.

1. Review your credit reports regularly

Review any negative information in your credit report. Confirm the accuracy of the line item, including the delinquent date. This is important because the item will stay on your report for several years starting from the reported date of delinquency. If you spot any inaccuracies, inform your credit reporting agency so they may review and update the records accordingly.

2. Get current on your monthly payments

If the data on your report is accurate (and the debt has been validated), it’s time for the next step, which involves paying the debt. But you should know that paying the loan won’t instantly improve your credit. This is because, as mentioned above, a missed payment will remain on your credit report for several years. It can be disappointing to know, but staying current on your account will keep you from being sued for non-payment. That’s a good reason right there to wipe out the debt.

3. Set up an auto debit payment facility

Too busy to keep track of everything? Having an auto debit system in place means that you won’t have to worry about forgetting or missing your monthly repayments. An auto debit payment facility will ensure that the required payment amount (such as your monthly car loan repayment) will be deducted automatically from your chosen bank savings or current account. Check with your bank for a list of participating payee corporations to know which loan payments can be managed via auto debit.

When can I see positive results?

Over time, a late payment will have less of an impact on your credit score. Eventually, your score will improve. Well, as long as you are paying all of your loans on time and keeping a low credit utilisation ratio, which is the amount of debt you have compared to the amount of credit you have available. An optimal credit rate utilisation is below 30%. If you want to raise your score as quickly as possible, keep your credit utilisation ratio below 10%. Be patient and pay all of your loans promptly and you’ll see your credit score rebound over time.
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