5 Types of Late Payments That Can Hurt Your Credit Score
Of all the factors that determine your credit score, nothing is more important than your payment history. Your payment history is weighted heavily in common credit scoring models, which means that late payments, collections, foreclosures and short sales can all have a seriously negative impact on your score.
Let’s take a look at what kind of payment information is included on your credit report and how it can influence your score.
Types of late payments that can hurt your credit score
There are two primary types of credit scores: FICO® and VantageScore. Both factor in payment history to determine your creditworthiness. However, FICO — the more commonly used score — weighs your payment history as about 35% of your score, while VantageScore weighs it as about 40%. The bills that could affect your credit score include:
Past-due medical bills can negatively affect your score. However, late medical bill payments won’t show up on your credit report until they’re at least 180 days overdue, giving patients time to catch up on potentially unexpected medical expenses.
In 2016, FICO released FICO Score 9, which gives less weight to medical debt than non-medical debt, unlike previous FICO Score versions. The change was made after FICO research showed that unpaid medical bills were less indicative of credit risk than other types of delinquencies.
Keep in mind that while FICO Score 9 gives less weight to medical debt, FICO Score 8 is still the most widely used version.
Your mortgage payments are regularly reported to the three credit reporting agencies, which means you’re rewarded for consistent on-time payments and penalized for payments overdue by 30 days or more. One late payment can have a major impact on a high FICO Score, possibly causing as much as a 90- to 110-point drop, according to Equifax.
Credit cards can be challenging to manage, especially if you only make the minimum monthly payment, which might make it more difficult to keep your balance under control and keep up with on-time payments. As with other types of late payments, your credit card payment needs to be at least 30 days overdue to be reported to the credit bureaus.
Like other installment loans, auto loans appear on your credit report. Lenders report payments that are 30 days or more late.
Student loans can require large monthly payments, and missing those payments can drag down your credit score.
“Student loans are treated like any other installment loan,” said John Ulzheimer, a credit expert who formerly worked for FICO and Equifax. “If you manage it properly, then you’ll be in good shape. If you do not, then it can damage your credit scores.”
According to Ulzheimer, college students often end up carrying multiple student loans, though they might not even realize it. “Student loans are credit reported by disbursement,” he said. “If you took six disbursements to pay for your degree, then you will end up with six student loans on your credit reports, even if you’re only making one payment each month.”
This could give your student loans an outsize effect on your credit. For example, your credit report might show that you defaulted on multiple student loans — even if you were only making one, consolidated monthly payment.
How missed payments are weighted in calculating your credit score
Late payments range in how seriously they’ll affect your score. Some factors that could change the weight of your missed payments are:
- How late you were to pay. In general, the longer a payment goes unpaid, the more it affects your score.
- How recently the late payment occurred. More recent missed payments affect your score more than an old missed payment that was remedied.
- How frequently you miss payments. Your frequency of missing payments can factor into the impact on your score.
- How much you owe. Missing big payments, or a number of payments that add up to a large sum, can have a bigger influence on your score than smaller missed payments.
Collections, public records and your credit score
Although not all bill payments are regularly reported to the three credit reporting agencies, any time a debt is sold to a collections agency, that instance shows up on your credit report. When an account is notably past due, creditors or lenders may choose to send the account to a collections agency.
This can be reported as a separate account on your credit report — and it has a negative influence on your score. It takes seven years from the original delinquency date to remove the collection from your report. Any bill can technically be sold to a collections agency, from the standard payments that typically affect your credit score (like a mortgage or auto loan), to your utility or cellphone bill.
How to recover from late payments and improve your score
There’s no quick way to fix your credit score. However, with time, there are several steps you can take that can help.
Check your credit score and credit report. Knowing what your credit score is and what’s on your credit report is half the battle. To start, you can get your free credit score from My LendingTree. You can also request a free credit report from each of the three credit reporting bureaus every 12 months at AnnualCreditReport.com.
Prioritize paying off debt. Paying off your debt and continuing to keep balances low can help you improve your score.
Know your credit utilization rate. Your credit utilization rate is basically your balance-to-limit ratio — and it’s best to keep it at 30% or under. To improve your credit utilization rate, you can pay down existing debts or request a credit-limit increase.
Work with debt collectors. By settling an account, your debt collector agrees to take a loss and accept less than the amount owed. The collection account won’t be scrubbed from your credit report, but it will bring the account balance to zero, which might improve your score and help you focus on keeping other accounts current.
Think twice before applying for new lines of credit. Requesting additional lines of credit, or submitting several applications in a short time span, may look risky to lenders.
Consider working with a credit counselor. If you’re consistently struggling with paying your bills or minimizing your debt, consider working with a credit counselor. You may benefit from some financial coaching to help get (and stay) organized.
Set up payment reminders. Sometimes life gets busy. Payment reminders or automated payments can help you stay on track if you find that a lack of organization is preventing you from paying your bills on time. Remember: Consistency with payments is key to raising your score.
Watch the types of credit you have. Credit mix accounts for approximately 10% of your FICO Score. Having a variety of credit accounts that are in good standing — credit cards, an auto loan, a mortgage — might help boost your score.
Don’t close unused cards. If you’ve paid off a credit card, consider keeping the account open. Keeping a longer credit history can benefit you, and closing the account could shorten your history (if it’s an older account). Credit scoring models often factor in both the age of your credit history and the average age of accounts, rewarding people with longer credit histories. Length of credit history accounts for about 15% of your FICO Score.
It’s never easy to recover from serious credit problems. But knowing what kind of late payments affect your credit and how to avoid them in the first place can help you start to improve your score.