How Do Late Payments Affect Your Credit Score?

Lidia Staron, author at OpenLoans
Lidia Staron   Head of Content
Personal Finance
I enjoy navigating people through important financial decisions.

It's not unusual for a person to fall behind on a payment. Even individuals who normally pay their bills on time can overlook paying a bill due to certain circumstances such as a lost job or a medical emergency. Unfortunately, just missing one payment on a credit account can hurt you for months, maybe even years. And this is not an exaggeration. A late payment is a bigger deal than you think. While your creditors won't be banging on your door after one missed payment, they'll be taking action and it's one that you don't want to happen.

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What Happens When You Make a Late Payment?

Making a late payment can affect your credit report.

Good question. Obviously, a late payment is any payment received by the creditor after the due date. If you pay less than the minimum amount due, then this is also considered a late or missed payment. So, what happens then if you make a late payment?

1. You will be charged a late fee.

Even if you're just one day late, your creditor may charge you a late fee anywhere between $25 to $35. This late fee will be reflected on your next balance statement. You'll continue to be charged a late fee each month that your payment is late or if it's less than the minimum amount due.

2. Your Interest Rate Will Go Up

For payments that are 60 days past due, creditors usually increase the interest rate to the penalty or default rate. For credit cards, this can go as high as 29.99% which means that your finance charges will also go up. When this happens, you'll need to pay off a higher outstanding balance, making it more difficult to pay off your personal loan. If you had a promotional interest rate when you signed up for a card, a late payment can also cause you to lose that promotional rate.

3 The Late Payment May Affect Your Credit

If you're wondering do late payments affect credit score, then you should know that 35% of your score is based on your payment history. This means that a late payment CAN have a significant effect on your score. But it doesn't always happen that way. Paying your bill a day late may incur you a late fee and even a penalty rate, but it won't always have an impact on your credit score. We'll talk about this more in-depth below.

When Does A Late Payment Affect Credit Score?

Monitor your credit score and credit report for late payments.

As we’ve already mentioned, a late payment CAN affect your credit score, but it doesn’t mean that it always will. It depends on certain factors. So, how do late payments affect credit score? And when does it not?

According to the law, a late payment cannot be reported to the credit bureau by a creditor or lender until it's at least 30 days late after the payment due date. What does that mean? Well, if you're only a few days late or even a couple of weeks, you can avoid getting reported as long as you make the full payment before that 30-day mark. You’ll still get charged a late fee and you may incur a higher interest rate, but you definitely won’t be seeing this late payment noted in your credit report. Take note that partial payments (less than the minimum amount due), even if done before the 30 day-mark, will still be considered late.

Now, not all creditors or personal loan direct lenders report delinquent accounts after 30 days past the due date. Some may not report late payments until the account is already 60 days past due. It will depend on the policy of your lender/creditor regarding late payments, something you need to take note of before you open a credit account. In addition, missed payments on your cell phone bill or utilities likely won't get reported to the credit bureaus until you completely default on the account. If you become so delinquent that the company opts to close the account and disconnect their services, then your account will most likely be sent to a debt collection agency. When this happens, the chances of your account getting reported to the credit bureaus are even higher. The damage to your credit will be greater than the consequences you'll face with just a late payment.

How long does a late payment stay on my credit report?

Let's say your late payment has been reported to the credit bureau. Once notified, the credit bureau will then list your late payment on your credit report. It will be listed depending on how late your payment is. For example, 30 days late, 60 days late, 90 days late, etc. So, why is this important? Lenders use the information stated in your credit report in order to gauge your reliability as a borrower. The information will tell them how much of a risk you are, what the chances are that they'll get their money back, etc. Your payment history, obviously, will give them insight into your reliability. If you have a history of on-time payments, it tells them that you are an individual who will most likely be able to repay your loan on time. If you have a history of late payments, this tells them that it's highly probable that you won't be able to pay the debt back on time.

Aside from being included in your credit report, a late payment will also be factored into your credit score. The degree to which it may cause your score to drop will depend on a number of factors. Usually, the impact on your credit score will depend on how severe the late payment is, how recent it is, and how frequently you've been late in making payments.

Now, each credit bureau uses its own model when evaluating an individual's information to calculate his/her credit score. This is why credit scores tend to vary between credit reporting agencies. That being said, the effect of a late payment on your credit score would be relatively the same.

Generally, the longer it takes you to pay your bill, the bigger the damage it will make on your credit score. Let's say you're 30 days late. The negative impact on your credit score will be smaller compared to a payment that is 60 or 90 days late. In addition, the more recent the late payment is, the more damaging it will be on your score.

That's not all. The impact of a late payment will vary depending on your credit score. A person with a higher credit score like 780 can experience a drop of 90 to 110 points, which could make it harder to receive excellent credit personal loans. This is true even if that consumer is someone who has consistently made on-time payments in the past on all their credit accounts. On the other hand, a consumer with a low credit score like 680 would experience a 60 to 80-point drop, even if he or she already has one or two other late payments on his credit report from a year or so ago. In short, the better your score and your credit history are, the more points you stand to lose.

One more thing. The late payment remains on your credit report for up to seven years. The only good news is that its impact on your credit score fades over time. Mistakes usually fall of your credit report within seven years.

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