Have you missed a payment, made a late payment, or made a payment less than the amount owed to a creditor or lender in the past? A missed or late payment may be a big deal as it could negatively affect your credit score. Your creditors/lenders most likely won't show up knocking at your door looking for that missed payment, but they could report this action to the credit bureaus.
A late or missed payments could affect your credit for months or maybe even years. Whether you are 30 days late or more, not paying your bills on time could have a negative impact on your credit score. Understanding these negative consequences of a late or missed payment should be ample reason to make the extra effort to pay your creditors or lenders on time.
Effects of Late Payments
Creditors and lenders will likely review your payment history when assessing your credit risk. A history of on-time payments indicates to creditors and lenders that you have been a responsible borrower. A history of late or missed payments could indicate that you may have trouble repaying or that you may have defaulted on your debts, resulting in a financial loss to the creditor or lender.
A payment may be considered late if it's received after the due date or if less than the minimum amount due. An unreliable payment history can raise a red flag to creditors/lenders, and several things may occur when you make a late payment, miss a payment, or pay less than the amount due:
- You may be charged a late fee. If you pay your bill even one day after the due date, you could be charged a late fee. This late fee is typically added on your next billing statement. If you continue to pay after the due date, you could continue to suffer additional late fees, thus wasting your hard earned money.
- Your interest rates may rise. Making late payments may also result in an increase in your interest rate.
- Late or missed payments may end up on your credit report. For those creditors/lenders that report to the credit bureaus, they likely will report your late payment if it's more than 30 days late. This means it will show up on your credit reports and may have a negative impact on your credit score. The bad news is late payments could stay on your credit report for seven years from the date of you last late payment.
- Your credit score may drop. At the three major credit bureaus, payment history is one of the most important factors in calculating your credit score. It can typically account for up to 35 percent of your credit score. Just one late payment, of even one day late, can have a significant negative outcome on your credit scores. The more late payments you make the more it could impact your credit score.
What Do I Do If I Can't Make My Payments?
Having late payments on your credit report could hinder you from getting future financing, plus trying to get your score up might prove harder than it seems. So, if you're struggling to make your monthly payments, don't procrastinate!
If you are struggling to make a payment, you may consider contacting the lender to find out if they offer any internal hardship programs. Creditors might be willing to work with you. Many lenders have an internal hardship program of some kind, but the programs will differ from lender to lender. These programs can possibly lower your interest rates or give you an extended repayment plan.
If you do enroll in a hardship program, some creditors may close your account. Closing your account might affect your credit score but it also may be better than having 30, 60, or even 90 plus day late payments on your report.
Some creditors may want you to sign-up for automatic payments. They may waive your late fees for signing-up. Knowing that your payments will be paid on time with automatic payments not only helps you pay on time but it can also save the creditor money and administrative hassles of chasing a late payment. You may even be allowed to pick your own due date, so you can schedule around your other bills and paychecks. However, you should consider your unique circumstances in deciding whether automatic payments are right for you.
You could also set up automatic bill reminders. Getting organized can be beneficial to ensure you make your future payments on time. You can use your phone calendar or the calendar on your computer to set up reminders. Many lenders allow you to create email or text alerts to remind you about upcoming bill due dates. Take advantage of these options to help ensure you make your payments on time.
Be proactive and reach out to your creditors if you sense you might not be able to make your payment on time.
How Long Do Lenders See That Late Payment?
Late payments generally remain on your credit reports for seven years. Check for inaccuracies on your credit report; you should dispute any errors and have them removed from your credit report. If it's a legitimate late payment, you will not be able to have it removed from your report before those seven years end.
During those seven years, every time you apply for a loan, be it a mortgage, a car loan, a student loan or a personal loan, lenders will see this negative mark on your credit report.
Does the damage of a late payment to your score lessen over time?
Even though a late payment remains on your credit reports for seven years, the impact of this negative mark on your credit score does steadily diminish over time.
While a late payment might drag your score down immediately, it won't have as much of an impact four or five years later. As you make your payments on time each month, you will steadily rebuild your credit score.
How do I know if I have a late payment on my credit report?
Most likely, you will know if you made a late payment. If you are unsure or if you want to check how long a late payment has been on your credit report, you should check your report from the three major credit bureaus. The Fair Credit Reporting Act requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion provide you with a free copy of your credit report once every 12 months.
There's good news for consumers, starting in 2020, everyone in the United States can get 6 free credit reports per year through 2026 by visiting the Equifax Website or calling 1-866-349-5191. That is in addition to the one free Equifax report (plus your Experian and TransUnion reports) you get at annualcreditreport.com. To request your report from AnnualCreditReport.com, visit annualcreditreport.com, call 1-877-322-8228 or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.