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How a Missed or Late Payment Affects Your Credit Score

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A late payment can drop your credit score as much as 90 to 110 points, and will stay on your credit reports for seven years. However, lenders typically report late payments to the credit bureaus once you’re 30 days past due, meaning your credit score won’t be damaged if you’re one day late. But even if your score is intact, you could be hit with a late fee and a penalty APR.

Learn how late payments work and what you can do to recover if you’ve paid late.

How do missed and late payments affect your credit score?

Payment history is the single-most important factor affecting your credit score, making up 35% of your FICO Score and 41% of your VantageScore.

For that reason, paying on time is crucial to maintaining a good credit score. If you do fall behind, taking action quickly can help prevent or mitigate damage to your credit score. The longer you wait, the more your credit score will drop.

It’s also worth noting that the amount of the payment due can affect how many points your credit score goes down. Falling behind on a larger payment can have a bigger impact on your score if you have a large balance owed.

On the other hand, the type of account does not make a difference. A late payment on a credit card carries the same effect as a late payment on an auto loan or mortgage. However, note that mortgage payments are typically larger than those for credit cards or for other loans, so missing a mortgage payment could have a larger impact on your score because of the payment size and total amount owed.

Here’s a breakdown of what you can typically expect depending on how late your payment is:

Payments less than 30 days late

If you miss a payment but catch it before you’re 30 days late, you’re in luck.

“Credit reporting standards dictate that an account, of any variety, has to be a full 30 days past the due date before it can be reported to the credit bureaus,” said credit expert John Ulzheimer, formerly of FICO and Equifax.

This means if you pay the bill before it’s 30 days late, it shouldn’t affect your credit score at all. However, you’re likely going to be hit with a late fee and a penalty APR (more on that below).

Be aware that payments can process as quickly as the same day, but with other lenders, it can take much longer. To avoid encountering processing delays, try not to wait to pay until the 29th day your payment is late.

Payments more than 30 days late

Once a late payment hits your credit reports, your credit score will likely drop from 90 to 110 points. Consumers with high credit scores may see a bigger drop than those with low scores.

“The first delinquency impacts [their] FICO Score more than a different consumer who might have multiple delinquencies on [their] credit history,” said Tommy Lee, principal scientist at FICO.

Some lenders don’t report a payment late until it’s 60 days past due. However, you shouldn’t count on this when planning your payment. The later you pay, the worse the impact on your credit score. Late payments show on your credit report as 30, 60, 90, 120 and 150 days late.

Here’s an example of the effect a 30-day delinquency has on two different consumers:

30-day delinquency
Consumer 1 Consumer 2
Current FICO Score 680 780
FICO Score after a 30-day delinquency 620 – 600 690 – 670
Total FICO Score drop 60-90 90-110

Source: FICO
*Note this study was done on selected consumer profiles, and there are a wide range of profiles so results may vary.

Payments more than 60 days late

The later your delinquency, the higher the likelihood your lender will sell the debt to a collection agency. These institutions are known for aggressive tactics as they attempt to collect payment.

How do late payment fees and other penalties work?

Credit cards

The first time you pay late on a credit card bill, your issuer can charge a late fee of up to $28. If you pay late a second time within the next six billing cycles, the late fee can increase up to $39. However, it can never exceed the minimum payment due.

If you have a good payment history prior to missing a payment for the first time, your lender may be willing to waive the late payment fee. You’ll likely need to call and make the request, though.

In addition to a late fee, you should also be aware of the possibility of incurring a penalty APR. Not all credit cards utilize a penalty APR, but many do. Penalty APRs can go as high as 30% after missing a payment. Once you make the payment, call your issuer and find out if your original APR will be reinstated or if you’re stuck at the higher rate.

Finally, note that if you were taking advantage of an introductory 0% APR offer on your credit card, missing a payment could lead to cancellation of the intro offer even if you later pay up.

Student and personal loans

How a late payment on a student loan is handled can vary between lenders. If you’re dealing with a private student loan, refer to your student loan contract. For federal student loans, details are spelled out online by the U.S. Department of Education:

  • Your loan becomes past due the first day after you miss a payment.
  • After 90 days, your loan servicer reports the late payment to the credit bureaus.
  • Eventually, your loan will go into default. Some of the penalties you’ll have to deal with once your loan is in default include the entire unpaid loan balance plus interest becoming due immediately, losing eligibility for additional federal student aid, your wages potentially garnished and your tax refunds potentially put toward your debt.

You may face some similar penalties if you miss a payment on a personal loan. After 30 days, your lender will report it late to the credit bureaus. You may also be charged a late payment fee and your interest rate can increase. After 60 days, your lender may ask for the full amount owed to be repaid. Eventually, the lender will likely sue you or sell the debt to a collection agency.

Mortgages

Most mortgages have grace periods of 15 days. After the grace period is over, you’ll typically be charged a late fee, often around 4% or 5% of the overdue amount. Once your payment is 30 days past due, it will be reported late to the credit bureaus. It continues to get worse from there:

  • After 60 days, you’ll probably incur a second late fee
  • Once you hit the 90-day mark, you can expect a letter warning of foreclosure
  • At 120 days past due, your lender can begin foreclosing on your home

How long will late payments stay on your credit reports?

A late payment will stay on your credit reports for seven years from the date of the delinquency, even if you catch up on payments after falling behind. If you leave the bill unpaid, it will still fall off your credit reports in seven years, but you’ll suffer severe penalties in the meantime.

Your lender may start by levying a late fee and raising your interest rate to a penalty APR. The issuer can also cancel the card so you aren’t able to make any further charges.

Eventually, unpaid debts are typically sent to collections, after which the collection agency that now owns the debts will repeatedly contact you and try to get you to pay what you owe. In the case of auto loans and mortgages, you risk potentially more serious repercussions, such as losing your vehicle or home as the lender tries to recoup their losses.

If a late payment is incorrectly listed on your credit reports, you can file a dispute with the credit bureaus to get it removed. However, accurate listings will generally remain on your reports even once you pay.

You can send a goodwill letter to your issuer explaining why you paid late and highlight your previously solid payment history, and ask the issuer to remove the late payment from your credit reports. Just know they’re under no obligation to grant this request.

How do you improve your credit score after a late payment?

Get current on payments and stay current

If you’ve missed a payment, the best thing you can do for your credit score is to bring the account current and make all future payments on time. If you’re struggling financially, you may even be able to work something out with your lender — many credit card issuers, for example, offer hardship programs for people dealing with situations like job loss, medical bills and natural disasters.

Follow theSE steps for building good credit

Once you’re back on track with timely payments, know that the impact of one late payment will fade over time as you add more positive information to your credit reports. At its core, building good credit is a straightforward process. These steps will keep you on track:

  • Pay on time and in full. With payment history accounting for 35% of your FICO Score and 41% of your VantageScore, paying on time is imperative to achieving a good credit score.
  • Keep balances low. Utilization makes up 30% of your FICO Score and 20% of your VantageScore. Put simply, maxing out your credit cards makes it appear to lenders that there’s a risk you might not be able to pay back what you’ve charged. Personal finance experts recommend using no more than 30% of your credit limit. For example, if you have two cards with a $1,000 limit each, spend no more than $600 between them. Since loans are installment credit rather than revolving credit, they don’t impact utilization.
  • Apply for new credit sparingly. While new credit only makes up 10% of your FICO Score and 11% of your VantageScore, it’s still important to be judicious about how often you apply. Numerous applications over a short period of time can make it appear to lenders that you’re desperate for credit, which may lead to denials of your applications.

How to avoid late payments?

Set up autopay or due date alerts

Most lenders allow you to set up autopay for either your monthly payment or minimum amount due or statement balance.

Some other bills may also allow you to set up autopay, such as your internet, utilities and cellphone. While these payments don’t typically impact your credit score, if you fall behind to the point where your debt gets sent to a collection agency, having an account in collections on your credit reports will damage your score.

Another option your lender may offer is alerts, either by email or in the issuer’s mobile app. You may be able to set up reminders for when your payment due date is approaching and also based on other triggers, such as if your credit card’s available credit falls below a certain amount.

Change your payment due dates

If your payment due dates are spread out over the month, it may increase your chances of missing a payment. It’s generally a good idea to make your payment due dates the same day if possible, or at least within the same week so you can easily keep track of due dates.

Of course, this only works if you have enough money to cover all your payments at the same time each month. Otherwise, you may opt to stagger the payments close to when your paychecks are issued.

Lump multiple smaller debts into 1 payment with a debt consolidation loan

If you’re struggling to manage multiple debts, such as balances on multiple credit cards and/or payments on smaller loans, it might make sense to consolidate your debt with one bigger loan.

That way, you have just one monthly payment to keep track of, and one repayment date to work toward. Plus, depending on the lender and your credit history, you might end up with a better APR on the new loan than what you were paying on some of your credit cards or other loans.

Consider talking with a credit counselor

If you are in over your head and don’t have a clear path to paying off your debt, working with a nonprofit credit counseling agency may help. You can typically get an initial consultation for free, and fees for working with the agency after that are relatively minimal.

To ensure you’ve found a legitimate organization, make sure it’s affiliated with the National Foundation for Credit Counseling or the Financial Counseling Association of America.

At the most basic level, a credit counselor can help you evaluate your financial situation. If you need more than that, a credit counselor may be able to put you on a debt management plan.

With a debt management plan, your counselor may be able to negotiate with your creditors for waived fees and/or lower interest rates, and you’ll make just one monthly payment to the counselor who will then disperse it to your creditors. You might have to close credit cards during a debt management plan and will likely not be allowed to open new ones while on the plan.

Do not confuse debt management with debt settlement. The latter is a risky process offered by companies that may engage in predatory practices, and it will tank your credit score along the way.

 

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