Credit Score Improving Your Score

How Late Payments Are Killing Your Credit

Elizabeth Aldrich

Your credit score exists to give financial institutions a general idea of your credit risk. You may have heard of the FICO 5 — these are the 5 factors that go into creating your credit score.

Among all of these factors, payment history is the most important. It makes up 35% of your credit score. While not as damaging as defaulting on your mortgage, for example, making repeated late payments will have a significant impact on this portion of your score.

If your payment is more than 30 days overdue, your lender will likely notify all three of the major credit card bureaus. This is likely to ding your score, and while paying regularly on time will slowly bring it back up, the late payment can stay on your credit report for up to 7 years. Late payments will affect your credit differently depending on their severity and the type of payment you are making. Neglecting to pay your student loans, for example, can mar your credit for life.

Making a habit of paying your bills late is one of the worst things you can do to your credit score. But what if you accidentally miss one payment?

What Happens to Your Credit Score if You Make One Late Payment

Maybe.

If you’ve never made a late payment before and it’s been less than 30 days, your credit score is likely to remain unaffected. Your credit card company might even waive the late fee if you call them up. However, multiple late payments, even if always within 30 days, will cause your credit card to rack up late fees and could increase your interest rate.

If you only have one late payment but it’s been more than 30 days, it will add up quickly if you don’t pay it off immediately. After 60 days, or three missed payments, your credit score will start taking a significant hit and can drop up to 100 points or more. After 90 days, you will likely be sent to collections and see long-term damage to your credit. Finally, after 180 days of non-payment, your account is considered “charged-off”. This will be a huge blow to your credit score — almost as bad as bankruptcy.

What to Do When a Late Payment Occurs

Of course, the first step is to do everything in your power to make the payment as soon as possible.

If you’re having a lot of trouble paying it off quickly, you may be able to work out a deal with your creditor. Give them a call, explain your situation, and they may offer to set up a payment plan or lower your interest rate a little.

Once you’ve paid the bill, if this was an isolated incident, you may be able to convince the creditor to remove the late payment from your credit report. This is called a “goodwill removal”. It’s difficult to get one of these, but it’s always worth trying.

Essentially, you write a letter to your creditor asking them to remove the late payment from your credit report and explaining why they should. Your explanation should persuade them that it was an isolated incident and will not happen again. Keep it brief and to the point but polite and specific.

Send the letter to your creditor. Follow up with a phone call, and if you don’t hear back, you can send another letter. It’s okay to be persistent until you receive a response.

How to Avoid Late Payments

Now that you’ve taken care of any late payments you have hanging over your head, it’s important to set up a budgeting system so that you never miss a payment again.

The first step, and the easiest step, is to set up automatic payments on all of your bills that allow it. Automating your finances is the best way to stay on top of things and start working your way to financial freedom.

If you’re paying off debt, you can set up an automatic payment to pay off the minimum each month before the bill is due. You can then log into your account and put an additional amount toward paying off your debt according to that month’s finances. It’s always recommended that you pay off more than the minimum each month.

Everyone has had months where it seems impossible to make ends meet. Perhaps you had some unexpected costs come up or you lost a job. Do everything you can to stay on top of your bill payments, even if it means drastically cutting back in other areas of your life.

When you do find yourself in need of some extra cash to make ends meet, you might consider finding a side gig or a quick way to make some extra money online. From babysitting to filling out surveys, it is possible to close that gap.

How to Rebound From a Late Payment

Make sure to regularly monitor your credit report. You want to make sure that it’s increasing steadily rather than decreasing, and it should be as long as you’re paying everything off on time. If you notice a drop in your score unexpectedly, figure out why, and if you think there’s an error, be sure to contact your creditor to dispute it.

If your credit score has been decreased due to late payments, work on rebuilding it. Using a credit card regularly for certain purchases and paying it off in full, on time each month is a great way to do this. Even if your credit score is dismal, it’s possible to get a secured credit card that’s specifically designed for people who want to rebuild their credit. While it can be tough to dig yourself out of a financial hole, credit scores do rebound eventually. With a little dedication and a lot of smart budgeting, yours will too.

About the author

Elizabeth Aldrich

Elizabeth Aldrich

Elizabeth is a freelance writer and “digital nomad” specializing in small business, entrepreneurship, career advice, real estate, travel, arts, and culture. She’s written for outlets as varied as Rawckus Music and Arts Magazine, Itcher Entertainment, Sweden Tips, Houzz, Hometalk, JobHero, Tico Times, and Eugene Weekly. Thanks to a three-year stint in a travel job, a knack for mining great deals, and credit card churning, she has not paid for a single flight since 2012, despite her constant travels. You can find her on Twitter @LizzieAldrich or her website, www.elizabethaldrich.com.

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