Late payments may be the bane of your credit score perfection, or they may just be part of your overall credit mediocrity. How late your payments are, how perfect your score is otherwise, and a host of other factors all play into how much a late payment (or multiple late payments) will affect your credit score.
Just how will a late payment affect your credit score? I’ve broken that question into several more specific, commonly asked questions. Here’s what you need to know:
What Does a Late Payment Do to My Credit Score?
Obviously, a late payment isn’t a good thing – with your creditors or for your credit score. But I can’t say, “One late payment will drop your credit score by 100 points.”
The truth is that it depends. But know this: Your payment history makes up a significant portion of your overall credit score calculation. According to the official FICO website, credit history accounts for about 35 percent of your overall credit score.
This means that even if the rest of your credit history is great, late payments could have a hugely negative impact on your credit score.
How Late Does a Payment Need to Be to Affect My Credit Score?
Here’s the good news: most creditors won’t report a payment that’s just a few days late. After all, getting information to credit bureaus involves a lot of paperwork. So if your payment is less than 30 days late, according to Daily Finance, it probably hasn’t been reported to the credit bureaus yet.
But once you hit that 30 day mark, expect your late payment to show up on your credit report. In fact, late payments will be categorized based on how late those payments are: 30 days, 60 days, 90 days, 120 days, 150 days, or charge off. The more delinquent your payment is, the worse its effect on your credit score.
According to Fool.com, the occasional payment that’s 30 to 60 days late will have a small, temporary effect on your credit score. A payment that’s more delinquent can have long-term credit score ramifications. And the story gets worse if your account is charged off or moved to collections.
What Happens to My Credit Score When an Account Goes into Collections?
A charge off, a Fox Business article notes, is an accounting term. After a certain period of delinquency, your lender can no longer count your loan, credit card, mortgage or whatever else as an asset. The lender has to charge it off its books.
A charge off is reported to credit bureaus and will remain on your credit report for seven years. Its effect is significant and can hurt your credit score for that entire seven-year period.
Once your account is charged off, the lender will try to collect on your debt through its own collections department or by hiring a collection agency, or the lender will sell the debt to a collection agency.
When your account goes into collections, you can never bring it current again, even if you pay it in full. Yes, your credit report will show that you paid the debt, but you’ll still look much riskier to lenders because it took so long for you to pay the debt.
The lesson: Do everything in your power to keep accounts from being charged off, even if they’re already very late. We’ll talk more about the steps you can take later in this article.
Are All Late Payments the Same, or Are Some Worse than Others?
According to an article on Credit.com, the real goal of any credit scoring formula is to determine how likely you are to make a 90-days-late payment in the 24 months after your score is calculated. The lower your score, the more likely you are to make a very late payment in the next two years.
That means that the impact of a 30-to-60-days-late payment doesn’t last as long on your credit score. But it also means that no matter what type of account you’re talking about, a very late payment is a very late payment.
So, a very late credit card payment could have about the same impact on your credit score as a very late mortgage payment.
But this isn’t the only thing to consider when deciding, if you must, which payments to put on hold. Obviously in the long run, secured debts – like your mortgage or a car loan – can have more dire financial and personal consequences.
A credit card company might charge off your debt and send debt collectors after you, but they can’t do much more than that. Your mortgage or auto lender, on the other hand, can reclaim your property through foreclosure or repossession to get part of what’s owed to them.
As far as your credit score goes, it doesn’t matter which payments are late. But practically speaking, it’s much better to keep up with the mortgage and car payments, even if you have to pay unsecured debts very late to do it.
What About Late Payments on Non-Debt Accounts?
When we think of a credit score, we normally think of actual credit – auto loans, mortgages, credit cards and the like. And, most of the time, those are the things that affect your credit score.
However, other non-debt accounts can affect your credit score, as well. On a normal basis, your utilities company, phone company and Internet provider probably don’t do much reporting to the main credit bureaus.
If you make a late payment, you’ll have to pay a late fee, sure. And if you make lots of late payments, your services will be cut off. But if your account goes late enough to enter into collections, it will be reported to credit bureaus. So make sure you’re staying current on utilities and other payments, as well as credit accounts, to avoid a negative impact on your credit score.
Will Late Payments Hurt My Score the Same as Someone Else’s, or is it All Relative?
How late payments will affect your credit score is somewhat unpredictable. Because the FICO formula and similar credit-scoring models are proprietary, we can only guess how any one event will affect a person’s credit score.
The main differentiator, according to the National Foundation for Credit Counseling, is how high your score is. Because individuals with midrange credit scores are slightly risky to lenders, a late payment will probably not have a huge effect on their credit scores. Those with very good credit scores, on the other hand, will take a bigger hit from an out-of-character late payment.
According to the NFCC article, people with a credit score of around 670 could see a 140-point drop if an account is 30 days late. Individuals with a credit score of 780, on the other hand, might experience a 160-point drop from a similar 30-days-late payment.
This means that if your credit is great, you’ll need to be more cautious to protect it from late payments. If your credit isn’t fabulous, though, you’re not off the hook. That 140-point drop could be the difference between getting a loan and not getting one. So either way, it’s important to keep all your accounts current.
How Can I Avoid Having a Late Payment Hurt My Credit Score?
Maybe you’re struggling with the bills, or maybe you just keep forgetting to pay one small bill on time. Either way, here are some steps to take to avoid having a late payment harm your credit score:
- Set up bill pay reminders. There are a variety of apps available that will remind you when you have a bill coming due. For many, better cash flow planning is the key to ensuring that bills are paid on time.
- Talk to your lender. If you’ve just lost a job or run into other serious financial issues, talk to your creditors. The truth is that creditors would rather hear from you now, well before your account goes into collections, which costs them a lot of money. Try to reach a payment agreement that will work for you both – either an extended grace period or a smaller payment. That way, you’ll never be late in the first place.
- Prioritize your payments. Let’s say you’ve got $500 worth of payments to make, but only $300 in the bank. In this situation, you’ll need to prioritize which bills you pay. Essential bills – rent, mortgage, utilities, etc. – should take priority. After that, pay bills that have a hefty late fee. Finally, pay the bills that are closest to going into collections.
- Ask for a lender to erase a late payment. Bringing an account current after 30-60 days’ delinquency should fix your credit score pretty quickly. But if your late payment was a one-time thing, you could also ask your creditor to erase that late payment from your credit history. Many lenders will make these “goodwill adjustments” to borrowers who are otherwise in good standing. It never hurts to ask.
- Start making on-time payments. If you’ve missed payments in the past, several months’ worth of on-time payments can make up for it. This is especially the case with payments caught up before 90 days of delinquency. Late payments still hurt, but if you catch up quickly, you can erase the effects before long.
- Check your credit report. Once you’ve caught up on your late payments, get a copy of your credit report. Sometimes your creditor or the credit bureau will make a mistake so that your account shows as still unpaid. If this is the case, file a written dispute to get the information corrected as quickly as possible.
Sometimes, late payments are a fact of life. When you’re struggling to pay bills on time, it’s good to know exactly how your decisions will impact your credit score – for now and over the long term.
Published or updated March 20, 2013.