How Late Payments Really Affect Your Credit Score

Late payments can happen to the best of us. Sometimes we pay a bill late due to oversight. Other times a shortage of cash is the culprit. How late your payments are and how often they occur affect your credit score. How perfect your score is otherwise, and a host of other factors also 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 Counts as a Late Payment?

First of all, it’s important to know that getting charged a late fee by a lender or utility doesn’t necessarily mean you’ll get a late payment report on your credit record. Lenders often charge late fees when you miss a payment by even one day. You can occasionally get these waived, especially if it’s your first one with the lender, if you just call and ask for grace.

At that time, they technically can report the payment late to the credit reporting bureaus. However, most lenders don’t report a payment as late until it’s at least 30 days past due. Normally, you have to go one full billing cycle without paying your payment before the lender will bother to report the issue to a credit reporting bureau.

Then, if you continue to miss payments, your tardiness will be reported on again at 60 days, 90 days, 120 days, and 150 days late. If you stop making payments for long enough, the account will be written off as a loss or charge off due to severe delinquency. That’s major bad news for your credit score!

Related: How to Get Your Totally Free Credit Score (and Avoid the Scams Out There)

This isn’t a good excuse to skip payments by a day or two because you failed to plan properly. However, you shouldn’t have a meltdown if you miss your credit card payment by a day. That probably won’t wreck your credit score. Just make your payment ASAP (factoring in that likely late fee, too)!

What Exactly 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.”

However, here are a few rules of thumb about how a late payment could affect your score:

• Payment history makes up the largest portion of your credit score, so late payments are really important.
• More recent late payments will affect your score the most. While the late payment record will stick around for about seven years, the older it gets, the less impact it will have on your current credit score.
• The later a payment is, the larger its negative impact. A 30-days-late record won’t hurt your score nearly as much as a 90-days-late record.
• Bringing accounts current helps, but it will still take time for your score to recover.

What Happens to My Credit Score When an Account Goes into Collections?

A charge off may appear on your credit report if you let an account lapse for 120 or 150 days (or more). This basically means that a lender is no longer trying to collect on your debt, and that it can’t count your debt as a business asset. The lender has “charged off” the account from its books.

Sometimes when an account is charged off, the lender sells your debt to a collections agency. When this happens, the agency will try to collect on the debt. Sometimes, you can pay the collections agency less than you owe to settle the debt.

Charge offs are really bad for your credit score for a couple of reasons. For one thing, you can never bring a charged off account back to current. You still owe on the debt, since you signed a contract agreeing to repay it. And that charge off will stick to your credit report for seven years, alerting other potential lenders that your payment record got really out of hand at some point.

When an account is charged off, a couple of things can happen, and they’ll affect your score differently:

1. You can settle with the original lender. Some charged off accounts will be transferred to an in-house collections department. In this case, you may be able to put together a payment plan to repay the debt’s balance. Or you could settle the debt for less than the original amount owed.

Paying the full balance off will result in a “paid in full” marking on your credit report, which could improve your situation somewhat. Settling the debt will result in a “settled for less than full balance” status, which is considered a negative. Either way, once the account is moved to $0 balance status, the record will still show that it was charged off.

2. The debt will go to a collections agency. If your debt gets transferred to a collections agency, your credit report can look really confusing. The old debt may still appear with the original delinquency date, balance, and charge off record. Then you may also see a second debt owed to the collection agency with that account’s payment record.

In this case, the original debt will show as paid off, since the collections agency will have bought the debt. But the charge off record will appear on your report for seven years. Your best bet in this situation is to set up a payment plan with the collections agency, or to settle the debt in full as soon as possible.

One item of note here is that the newest FICO Score 9 disregards collections accounts that are paid in full. This can make it much easier and quicker to recover your good credit after you go through a rough financial patch. But this only works if your lender happens to pull your credit score using FICO’s latest scoring model.

Related: Will Checking Your Score More Often Actually Improve It?

Bottom line: Charge offs can be a big ding on your credit score, and they’ll stick around for a long time. Avoid them if at all possible. If you’re on the verge of a charged off account, do everything you can to settle on a payment plan with the original lender.

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 because those are the companies that regularly report your information to credit reporting bureaus.

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. But if you’re consistently 30 days past due on those payments, or if you make a very late payment, you might get reported to the credit bureaus.

This is especially likely if your unpaid electric bill gets sold to a collections agency. In this case, you’ll have a negative on your account — the collections record — and will have to deal with the collections company to pay or settle your debt.

Again, the bottom line here is that you need to pay all of your bills on time.

What About Medical Debt?

Medical debt is one of the leading causes of bankruptcy in the United States. But having hefty medical debt — and even having that debt go into collections — doesn’t necessarily mean someone is prone to making poor financial choices. Luckily, credit scoring models are starting to catch up to this fact.

The FICO Score 9, introduced in 2016, started counting medical debt in collections differently from other debts. Unpaid medical debt in collections doesn’t have as large of a negative impact under this scoring model. While you’ll still need to pay your medical bills somehow, there’s less worry that an unexpected health event will wreck your wallet and your credit score at the same time.

Note, though, that this advantage is only available with the FICO Score 9, which not all lenders will use. If a potential lender pulls your credit score using an older model, medical debt gone to collections may have a larger negative impact on your 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. We know that payment history makes up the lion’s share of your credit score, but just how it plays out can depend on a huge number of factors, including how much other information you have in your credit file.

However, we know that one major factor in this equation is, surprisingly, how high your credit score is right now.

That’s right! The higher your credit score today, the larger the negative impact of a late payment is likely to be!

According to Experian, a single 30-days-late ding could cause a consumer with a 780 credit score to drop by 90 to 110 points. But if you’re starting out with a score of 680, you could expect a drop of more like 60 to 80 points.

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. It’s never too late to start building good financial habits. As soon as you start making on-time payments, they’ll begin to balance out the late payments on your record. This is especially true if your payments are not as severely late.
• 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.
• Try a credit simulator. Need some motivation to stay current or get current on your payments? Use a credit simulator like Credit Karma’s. These tools take your current credit score based on an estimate or free copy of your credit report. They let you see how different changes will affect your score. See what will happen if you let an account go late, or if you make all your payments on time for six months. These simulators may not be 100% accurate, but they can be good motivation to stay on the right track financially!

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.