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How a Late Payment Affects Your Credit Score & What to Do

  • Written by Steel Rose

There are five different factors that make up your overall credit score. The most important factor that makes up the largest percentage of your score is your on-time payment history. Making on-time payments shows lenders that you can be responsible with your own money and in turn, could make them more willing to lend you theirs. This is why it’s essential that you don’t accidentally miss a payment or have too many late payments. Even one late payment could ding your credit score.

Other factors include the length of your credit history, the various types of credit you use and how much you owe in total. Here’s a breakdown of the factors that go into calculating your credit score and how big of a percentage they account for:

 What happens when a payment is late?

If we are talking about one late payment against an otherwise clean report, you might lose a lot of credit score points, but it may take less time to recover. And since a clean credit report generally implies a high credit score, even a big drop could leave you in reasonably good shape. (According to FICO, a 30-day late payment can cause someone with a score in the high 700s to lose 60-80 points.)

However, multiple late payments will hurt you more and for longer. It’s also important to note that any adverse actions, whether we are talking about late payments or other actions like collections, are far more damaging to someone with a thin credit file than someone with a fat file and an excellent credit score. These two categories are the easiest to damage and repair.

If you are in the middle of the pack in terms of your score, you may not see a huge difference (especially if this is a one or maybe two-time occurrence). A middle-of-the-pack score indicates that there is already some level of uncertainty built into your score, hence the smaller drop in points versus someone who is either new to credit or rated as very low risk.

A credit score tries to predict the likelihood of the consumer defaulting in the near future. On-time payments indicate all is well. Late payments create uncertainty and may (or may not) be an indication of trouble to come.

The consequences of a missed or late credit card payment vary based on how many days your payment is past due. If you missed a credit card payment by one day, it’s not the end of the world. Credit card issuers don’t report payments that are less than 30 days late to the credit bureaus. If your payment is 30 or more days late, then the penalties can add up.

Missing a payment could cost you in the following ways:

  • Late payment fee: In most cases, you’ll be hit with a late payment fee. This fee is often up to $40.
  • Penalty APR: A late payment can cause your interest rate to spike significantly higher than your regular purchase APR. However, penalty APRs may be reverted back to the regular APR by meeting certain requirements, such as making two consecutive payments on time.
  • Cancellation of intro 0% APR periods: If you’re benefiting from an introductory interest-free period, you risk losing out on the offer if you make a late payment.

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

Late payments that were reported to the credit bureaus can stay on your credit report for seven years from when the account was initially reported late. But not all late payments are reported. Ultimately, this will depend on how soon you correct the problem. If you are late by even a day, you are likely to incur a late charge, but you won’t be reported. It is not until you pass the 30-day mark that you need to be concerned about a late payment notation on your credit report.

 There is one exception to the 30-day-and-you’re-late rule: medical bills. Medical bills don’t get reported as late until they are six months old. This allows time for wrestling with your insurance company, provider or hospital over your bill.

Can you remove late payments from your credit report?

Accurate and timely notations to a credit report generally cannot be removed. However, if the cause of the late payment was a genuine mistake on your part and it is a one-time-only thing, you can certainly ask your creditor not to report it in the first place. But the key will be to get to the creditor before they report. It’s easier to stop the credit reporting train before it leaves the station than after it has left. To read more click here.