Late credit card payments can happen to the best of us. But constant delays can seriously hurt your credit score. If your credit card payment is overdue, here’s what it could mean for your “future you” and how to get back on track.
How a late payment affects your credit score
There are five different factors that make up your overall credit score. The most important factor that makes up the largest percentage of your score is your on-time payment history. Making payments on time shows lenders that you can be responsible for your own money and, in turn, might make them more willing to lend you theirs. That’s why it’s essential that you don’t accidentally miss a payment or have too many late payments. Even one late payment could affect your credit score.
Other factors include the length of your credit history, the different types of credit you use, and the total amount you owe. Here is a breakdown of the factors that go into calculating your credit score and the percentage they represent:
What happens when a payment is late?
If we are talking about a late payment against an otherwise clean report, you may lose a lot of credit points, but it may take less time to recover. And since a good credit report usually means a high credit score, even a big drop could leave you in pretty good shape. (According to FICOa payment delay of 30 days can result in a loss of 60 to 80 points for a person whose score is higher than 700.)
However, several late payments will hurt you more and for longer. It’s also important to note that any unwanted action, whether late payments or other actions like collections, is far more damaging to someone with a thin credit history than to someone with a large file and an excellent credit rating. These two categories are the easiest to damage and repair.
If you’re in the middle of the pack in terms of scoring, you might not see a huge difference (especially if it’s one or maybe two events). An intermediate score indicates that there is already some level of uncertainty in your score, hence the smallest drop in points compared to someone who is either new to credit or considered very low risk.
A credit score attempts to predict the likelihood that the consumer will default in the near future. On-time payments indicate that all is well. Late payments create uncertainty and may (or may not) be an indication of problems to come.
The consequences of a missed or late credit card payment vary depending on the number of days past due. If you missed a credit card payment one day, it’s not the end of the world. Credit card issuers do not report late payments less than 30 days to the credit bureaus. If your payment is 30 days or more late, penalties may accrue.
Missing a payment can cost you the following fees:
- Late payment fees: In most cases, you will be charged late fees. These fees are often up to $40.
- APR Penalty: A late payment can lead to a significant increase in your interest rate compared to your usual purchase APR. However, penalty APRs can be reduced to the regular APR by meeting certain requirements, such as making two consecutive payments on time.
- Cancellation of intro periods 0% APR: If you benefit from an introductory period without interest, you risk losing the offer in the event of late payment.
How long does a late payment stay on your credit report?
Late payments that have been reported to the credit bureaus may remain on your credit report for seven years from the time the account was first reported late. But not all late payments are reported. Ultimately, it will depend on how quickly you fix the problem. If you’re late for even a day, you’ll likely be charged a late fee, but you won’t be reported. It’s only when you pass the 30-day mark that you need to worry about a late payment note on your credit report.
There is one exception to the 30-day rule and you’re late: medical bills. Medical bills are not reported as late before the age of six months. This leaves time to wrestle with your insurance company, provider, or hospital over your bill.
Can you remove late payments from your credit file?
Accurate and timely notations from a credit report generally cannot be removed. However, if the cause of the late payment was a genuine error on your part and it is a one-time thing, you can certainly ask your creditor not to report it in the first place. But the key will be to go to the creditor before they report. It is easier to stop the credit-rating train before it leaves the station than after it has left.
If you can’t get your creditor to report anything, there are steps you can take to minimize the damage. Payment history and credit usage make up 65% of your total FICO credit score. It is therefore in your interest to avoid late payments and to take your credit utilization rate into account. Experts recommend using less than about 25% of your total credit limit. It’s also best to avoid applying for a new credit card unless you really need one and only when you’re fairly sure you’ll be approved.
In a few months, you should see your score return to its previous level, or at least close, although the late payment score will remain on your credit reports.
How to avoid late payment?
Don’t blame yourself for a late payment, just try to do better next time. Here are some ways to set yourself up for success:
- Automate your payments so payment is automatically deducted from your bank account and you can make sure you’re never late. This is generally considered the “set it and forget it” approach, but it’s not a bad idea to check occasionally to make sure your payments are going to the correct account on the day you have selected. Make adjustments if your pay schedule changes or if you prefer to split your payment.
- Set up payment reminders for yourself on your calendar. Depending on your issuer, you can even adjust your preferences to receive an alert a few days before your payment is due.
- Adjust your payment due date to a day that works best for you and your schedule.