Do Late Fees Affect Credit Score?

Does Paying Late Fees Impact Your Credit Report?

This is true because a good credit score is achieved when every outstanding bill and debt is settled promptly. What happens if you pay your bills late and get charged extra, for instance, through late fees? Are those late fees detrimental to your credit?

The short answer is no – paying late fees itself does not directly affect your credit score. Nonetheless, whatever led to the payment of those late fees such as missing payment of credit cards or loans, can positively impact your credit rating. Here is a breakdown of how late payments, fees, and credit scores are linked together.

It is equally important to understand how the lateness of these payments can impact credit scores.

Credit scores are strongly influenced by previous payment behavior, being the most significant predictor of credit scores. FICO on its part reveals that payment history contributes to 35% of the scores. That is why, it is so imperative that all of your bills are paid fully and on the due date.

When you fail to make payments, pay later than the due date, or do not pay at all as agreed, it is recorded with the credit bureaus. Payments that were due but made after the due date can appear on your credit reports within 30 days. A one-time or two-time incident of a missed payment will not cause a riot in your score but consistent behavior will not be pleasant.

The damage to your scores gets worse the longer you go without making payments.

• 30 Days Late – This is likely to reduce your credit scores slightly should you pay 30 days past the due date. The later the payment, the greater the effect of its delay on the total amount.
• 60-90 Days Late – Delays that are 60 or 90 days will lead to a much bigger dip in your credit scores. At this stage, you are considered “seriously delinquent. ”
• 120+ Days Late – Losing four months of payments could be very detrimental to your credit score. At this stage, the lender will probably sue you and hand over your debt to a collection agency. They could drop between 100 points and even more.

In other words, each time you fail to meet your payment obligations, you are signaling to the lenders that you are a greater credit risk. Late payments also hurt your credit score and if you frequently miss your payments, your chances of getting credit and loans reduce. Before credit gets back to you.

Thus, late fees do not impact credit immediately and can be used as a form of revenue for the credit card company.

Whereas late payments themselves are reflected in your credit scores, late payment fees as a rule are not. For instance, if you have a 60-day grace period for a credit card payment and the interest is levied after that, then only the actual delay in payment is reported to the credit bureaus and not the interest. The late fees are not separately reported or are incorporated directly into credit scores.

However, those fees can be painful to your pocket regardless of the amount. Penalties are accumulated very fast, especially if you are already having a hard time making the payments. The late fees that are charged on credit cards hover around $30 to $40 in case of the first default. Penalties for mortgage and automobile loans, for example, can range from $100 to $300 per month. The late fee juggling makes it even more difficult to catch up with the payments.

As far as payment history is concerned, late fees do not erase the fact that you missed your due date and your credit suffers either way. Late fees are like rubbing salt into the wound – a blow to your pocket without removing the effect of late payments.

Late Payments and Fees: Understanding the Issue

Regardless of the reasons for paying late, timely action is essential in managing its consequences. Here are some tips for dealing with late payments and fees.

• At least meet the Minimum Due – If you do not have the money to pay the balance in full, then it is recommended to pay at least the minimum due as soon as possible. This will not fully shield your credit but it will show that you are sincere in your efforts.
• Inform Your Creditors – Try to reach out to your creditors or loan servicers if you think you cannot make your payment on time. Explain how one can negotiate with the creditor to have the late fees removed or have other payment options agreed on.
• Prevent Further Late Payments – Make future payments automatically through your bank account or a credit card that gives you rewards. Include in payment reminders so that you do not encounter more such problems in the future.
• Check for Late Payment Entries – Keep an eye on any other entries that are perceived to be a result of your late payments by frequently checking your credit reports. Challenge any adverse information with the bureaus.

Building your credit back up after late payments or collection accounts can be a slow process that may require effort over the period. Do not accrue new missed payments at the same time that you are not doing other positive things for your credit scores such as minimizing the number of hard inquiries on the reports, the credit card balances, and verifying all the details in the credit reports.

The bottom line is that the fees for the late payments themselves will not hurt your credit scores. However, not paying credit card bills, mortgages, loans or any other form of credit will in a way hurt the credit score – and the high fees only compound the financial problems that led to non-payment in the first place. That should always be the focus to stay in the good books of the creditors and ensure that credit scores are high.

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