Late Payments Can & Will Affect Your Credit

When you have a lot of different expenses to arrange every month, it can be easy to let one slip.

It’s important to avoid this whenever possible, as you may think this has little to no repercussions.

Sticking to your payment plan is even more important when you have loans or a credit card. Late payments can negatively affect your credit history, making it harder to get loans or cards in the future. Plus, falling behind on payments can make budgeting harder going forward.

Your credit score is made up of several different components, each of which carry different weights. Each matter, but your payment history is arguably the most important because it carries some of the biggest weight.

One Late Payment

According to Credit Karma, a late payment could result in a few different outcomes.

Your lender might charge you a late fee, which will be reflected in the next month’s bill. The fee will usually be between $25 and $35, so if you have a strict budget, this could easily throw it off.

The company may also increase your interest rates, which means you will have to set aside more money each month than before.

The best thing you can hope for if you realize you made a mistake and paid a bill late is that the lender doesn’t report it to any credit reporting agencies. Make sure you make the payment as soon as you realize the error. If it’s within 30 days, there is less of a chance it will be reported, CreditCards.com explained.

“Some hold off on reporting an account as delinquent until it reaches 60 days late,” Barry Paperno, the consumer operations manager at myFICO.com, said. “In this situation, a 30-day late [payment] will have no impact on the score, since the credit report will show no evidence of that late payment.”

Moving Forward

If your bank does decide to report the late payment, your credit score may suffer.

However, myFICO explained there are many different factors that go into how much your score will be affected. For instance, if you only had one late payment, or your late payments were a few years ago, it will affect it less than if you had multiple, or they were recent.

According to Equifax, a late payment can have a bigger effect on higher credit scores. A person with great credit and one late payment could lose as many as 110 points. On the other hand, someone with average credit and two late payments might only lose 80 points.

Your late payment won’t stay on your credit report forever, which means eventually it’ll stop affecting your score. Equifax explained negative information such as this usually sticks around for seven years.

Avoid Making The Same Mistake

Once you have made one late payment, you want to be sure it doesn’t happen again.

Setting up automatic payments so the money you owe is drawn from your bank account on time each month is a sure way to prevent another late payment. You’ll just need to be sure you have enough money in your account to cover all your bills.

A bank account only dedicated to a predetermined number of items is a good place to start.

Decide what bills you want to pay with the account. Then, calculate how much money you will need each month for each bill. Finally, talk to your employer about direct deposit, so that money automatically goes into the account.

If this doesn’t seem like a good option for you, trying using a calendar to remind yourself of when payments are due. You can create a calendar in your mobile phone so it gives you alerts when payments are coming up.

Sometimes your financial situation is not in your control. For instance, if you lose a job or have an unexpected emergency, you may find yourself struggling to stick to your budget. If this is the case, talk to your lenders before you miss a payment. Tell them your situation and ask if there are payment plans you can take advantage of or if they are willing to change your payment date, so not all your bills are due at the same time.

After your credit score is damaged, it can take some time to make up the lost ground.

Keep track of how your credit score is changing by checking it periodically. You are entitled to one free credit report a year from each of the three credit reporting bureaus – Equifax, Experian and TransUnion.

And most importantly, be sure to continue making your payments on time every month and you should see improvement in your score in a few years.

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