One of our most frequently asked questions is, “how much does a late payment affect my score?”. Unfortunately our answer is the same as a lot of our answers, “it depends”. While there are multiple factors that determine how much your score will be affected by a late payment, it is certain that your payment history is one of the largest variables of your overall credit score. Therefore, it is critical that you try to avoid late payments at all costs.
Unfortunately, late payments still happen for many different reasons. Regardless of why it happened, it is more important to know what to consider and potentially do if it does happen. The first factor to consider is how delinquent the payment was. Late payments are reported to the credit bureaus as 30, 60, 90, 120 and 150 days late. If the payment has still not been paid off by 150 days, the creditor will most likely charge it off or send it to a collection agency. While a late payment hurts your score, you can recover from it quicker by getting caught up with the payments that you missed. However, once it is sent to a collection agency or becomes a judgement, you no longer have the ability to become current on the account and your credit score will suffer even more.
The next thing you’ll want to consider is how many accounts on your credit report are delinquent. The more late payments you have on your credit report, the more your score is going to suffer. As with most items negatively impacting a credit report, the longer it has been since it occurred, the less it is going to affect your credit.
Recency is typically the largest factor when it comes to late payments. One recent late payment has the potential of hurting your credit more than several late payments in the past. Once again, it all depends on your overall credit situation. The best thing you can do with a recent late payment is to bring the account to a current status by making your missed payments. If you have never been late on a payment, it is worth reaching out to your creditors to explain what happened and ask them to forgive this occurrence. This helps in a lot of situations if your history with the creditor is and has been in good standing otherwise. The worst thing that could happen is that they say no, but it is a worth a try to get it removed.
Two widely “unknown” facts about late payments:
The higher your credit score is, the more points you will lose due to a late payment. Yes, you are penalized more when you have displayed better credit habits. While this doesn’t seem fair and isn’t necessarily intuitive, it does give you more incentive to protect your credit score and make sure that you never get a late payment.
If you have a certain number of late payments within a certain timeframe, you may experience a cap on your score for 12 months or more, keeping you from being able to qualify for a mortgage loan until you can display a consistent change in behavior.
Now that you understand the severity of a late payment impact, the best thing you can do is stay on top of your payments. If that requires you setting up auto-payments, reminders or calendar events every month, do it. The time it will take you to set these up will be worth never having a late payment on your record. Be sure to check out Tru Path Credit’s Education Center to learn more about what you can be doing to improve your credit score.