Late Payments Will Hurt Your Credit, But You Can Minimize the Damage

Photo to accompany story about what happens to your credit when you make late payments. Getty Images

We want to help you make more informed decisions. Some links on our site — clearly marked — will take you to a partner website and may result in us earning a referral commission. For more information, see How We Make Money.

It pays to be on time, especially when it comes to your bills — but what if life gets in the way and you’re unable to pay them or simply forget one month? 

You’re not alone – late payments are more common than you’d think, especially in hard times. A survey by online rental platform Apartment List found 32% of renters and homeowners entered August with unpaid housing bills from a prior month. Over 20% owe more than $1,000, the survey found.

No matter how they happen, you’ll want to address late payments right away. It might be easy to brush off one late payment as not a big deal, but payment history is the most important factor in your credit score, accounting for an impressive 35% to be exact. 

Lenders use payment history and credit score to gauge how likely you are to repay your debts, so late payments on your record can impact how you qualify for future credit and loans, like a mortgage or a credit card. 

A failure to make payments on time is “a sign of risk” to a lender, says Rod Griffin, senior director of public education and advocacy at Experian. “If you’re unable to pay one lender, the question is will you be able to pay another? ”

If you’re in a tight spot due to job loss or other financial crisis, reach out to your creditor immediately to ask for help and discuss your payment options. Many credit card issuers and lenders continue to offer temporary relief because of the coronavirus pandemic, so you may be able to work out an alternative repayment schedule, a lower interest rate, or forbearance. 

Here’s what you need to know about late payments, how they affect your credit, and ways to avoid them.

What Happens When You’re Late on a Payment?

There are many reasons why late payments happen, but the most important thing to know is they will affect your credit score if they’re more than 30 days past due, says Lauryn Williams, a certified financial planner and founder of Worth Winning, a financial planning firm in Dallas, Texas. “If you’re just a couple days late, you can still keep your credit in good standing, but you may have to pay a late fee,” she says.

The impact of a late payment depends on how long ago it was due and the terms of your agreement with the company you owe money to. Creditors and lenders typically don’t report payments that are less than 30 days late to the credit bureaus, but some lenders and creditors wait 60 days before they report past-due payments.

Pro Tip

A good rule of thumb to keep in mind: The later the payment, the greater the damage to your credit score.

Your credit probably won’t suffer as long as you pay before the 30-day mark, but you have to pay it in full. Partial payment won’t keep you from being reported late.

Try to avoid falling into a habit of paying your bills late in the first place. Even if you’re just a few days late and it doesn’t impact your credit score, you could still get hit with a late payment fee or sometimes a penalty interest rate by the creditor. 

If you’re more than 30 days late, Griffin says your credit score could drop as much as 100 points. A late payment won’t hurt a low score as much but will still do some damage.

Here’s a fictional example of the effect a 30- and 90-day missed credit card payment has on two people with different credit scores, according to FICO data. As you can see, Maria’s credit score drops more significantly if she misses a payment compared to Sofia.

SophiaMaria
Starting Credit Score607793
Number of Credit Accounts721
Total Revolving/Open Balances$5,760$6,500
Credit Score 30 days After Missed Payment570-590710-730
Credit Score 90 days After Missed Payment560-580660-680
Source: MyFICO

How Long Do Late Payments Stay on Your Credit Report?

Once a late payment is reported to the credit bureaus, it can stay on your credit report for seven years. It’ll hit your credit score the hardest when it first happens. But the older it gets, the less impact it will have. 

While you’re waiting for a late payment to fall off your credit report, you can find other ways to build your credit. For example, try your best to make timely payments and avoid charging too much on your cards, which keeps your overall credit utilization low. Other strategies, like asking for a higher credit limit and paying more than the minimum amount owed each month, can also help.

What to Do if You Missed a Payment

Don’t panic if you’ve missed a payment. The first thing you should do is pay what you owe, if you can. You can also reach out to your creditor to see if it’s been reported to the credit bureaus yet and discuss how to make your account current if you can’t make the full payment on the spot.

“If you miss a payment, catch up as soon as you can,” Griffin says. “Let them know you’re facing some issues, especially today with COVID-19 and what we’re going through with our economy. Lenders are able to work with you and want to make sure they’re working with you.”

Some creditors give borrowers a grace period, which can give you a few extra days to make a payment without additional fees or penalties. But they may charge you a fee, penalty, or both as soon as you miss your due date.

If you’re late but can pay the bill immediately, talk to your creditor to see if you can get a late fee waiver or refund. Creditors have the right to deny your request but they may be willing to make an exception if you typically make on-time payments.

If you’re past 30 days and can’t bring your account current, still reach out to your creditor to talk about hardship options. You may be surprised to find out there are still options to rectify the situation. 

But what if you’re really late? After 180 days of not making the minimum payment, a creditor may “charge off” your debt. You’ll still owe the full payment on your debt, but the lender has taken it off their books and it could end up with a debt collector. When it comes to dealing with a debt collector, it’s important to know your rights and how to respond appropriately.

How To Avoid Late Payments

The key to avoiding late payments is creating a habit that will make you much less likely to miss a due date in the first place. Your on-time payment goal should apply to all your bills, including utilities, rent, and cellphone service.

Here are several strategies you can use to help you make payments on time: 

Be Proactive 

If you think you’ll have trouble paying your bills, contact your creditor immediately – even before they are due – to explain your financial situation and see if any accommodations can be made. 

“You can do things to change the situation. Talk to lenders and creditors early and let them know what’s happening,” Griffin says. 

Pro Tip

Turn on-time monthly bill payments into a habit by signing up for an online account with each creditor and setting up customized account reminders for upcoming bills. It’ll help you remember when every bill is due, so you never miss a payment.

Over the last few months, millions found their income suddenly reduced or cut off because of the coronavirus outbreak, so many financial institutions are providing temporary relief. That includes card issuers, mortgage lenders, student loan servicers, and banks. Asking for assistance can feel a little daunting, but the benefits can be worth the trouble. 

You could also make payments on your credit cards throughout the month. You won’t have to worry about the due date as much if you’re paying down your balance little by little throughout the month. Plus, consistent payments can improve your credit utilization ratio and credit score.

Be Strategic About Your Payment Due Date

Sticking to a consistent date and time to pay your bills can make managing your money easier. Many lenders and services will let you select or adjust payment due dates. You’ll likely need to get on the phone with a customer representative to make the request. They’ll ask for your desired due date, then make the change. There are two ways you can go about it: you could stagger certain bills to match your payday or you could pay all your bills on the same day to help you remember. 

Set Up Reminders

To stay on top of your payments going forward, set up text alerts or calendar reminders a few days before bills are due. Don’t hesitate to set up multiple if you’re prone to forgetting easily. 

Consider Automatic Payments

You could also look into automatic payments, as long as your account isn’t at risk of becoming overdrawn. An automatic payment withdraws a minimum payment as soon as you get the bill. You can always go back later to pay more, but this tool does most of the legwork for you.