How Long Does A Late Payment Affect Your Credit Score?
Your credit score is an essential part of your financial life. It influences the chances of approval for new credit cards and loans, as well as the interest rates you stand to be charged. That is why it is crucial to know how specific actions can affect the credit score that you possess. One question that comes up often is: For how many years does a late payment linger on a credit report and impact your credit rating?
In simple terms, once you make a single delayed payment you may find that it drags down your credit score for as long as 7 years. However, the extent and length of the effect are determined by your credit history as a borrower. Thus, while one 30-day late payment will usually have only a minor and temporary impact, it is a good idea to avoid such occurrences altogether. However, if you have several such late payments or even more severe delinquencies, it can significantly harm your credit score for years.
When A Late Payment Is Reported?
The three major credit divisions include Equifax, Experian, and TransUnion, With the help of your creditors and lenders your account status is reported to them every month. This concerns whether or not you were able to pay your bills on time or whether you were a little tardy in your payments.
In general, creditors can report your account as late if you're a month, two months, three months, or four months before payments. 30- 60 days are regarded as less severe while 90- 120 days are veritably severe.
The late payment will appear similar with all three credit reporting agencies once the creditor reports – which is within one to two months of the first due date without payment.
An Overview of How Late Payments Impact Your Credit Ratings
FICO Scores are the most frequently used credit scores with a scale of 300 to 850. Late payments can negatively impact your FICO Scores in two ways.
Payment History
35 percent of your FICO score is based on your payment history, which includes such elements as late payments. Not surprisingly, recent late payments are worse for your scores than payments made later on.
Specifically:
- A payment that arrives 30 days past the due date can cost you between 60 and 110 points.
- Two late payments, which are 30 days behind, can cost you between 80 and 150 points.
- A total of 3 days of delay can cost your credit scores between 160 and 240 points.
This means that the higher the number of late payments, the harder the credit scores are going to be beaten.
Credit Utilization
They also lead to a high credit utilization rate, which is the chance of credit available to you that you're using. This factor contributes to 30 percent of the FICO scores.
In this case, missing a payment on your credit card could lead to the card’s issuer lowering your credit limit. Higher utilization from lower limits will pull down your credit scores.
Impact of Late Payments on Your Credit Score: How Long
Delinquent payments can be reported to the credit bureaus and will be reflected in the credit reports for up to seven years since the first missed payment. However, the effect on your scores reduces after some time especially when you enhance your credit by meeting all your bills and having fewer credit balances.
Here is a breakdown of how long a 30-day late payment stays on your credit report and affects your credit at different stages.
0 to 6 months: Severe impact 6 to 12 months Large impact 1 to 2 years Moderate impact 3 to 5 years Minor impact 5 to 7 years Very minor impact
As you can observe from the chart above, the impact of a 30-day hit is not terminal; it gradually recedes over time. If it was a one-off, your score will bounce back in the next 12 to 18 months as the late record becomes older and you establish a fresh credit history.
Your scores quickly improve if credit utilization is pushed very low and all other bills are paid on time and no one applies for credit before scores are again active.
You can also get late payments eliminated earlier through credit report disputes or certain credit forgiveness programs provided by your credit card companies.
How to mitigate the effects of delayed payment?
Even when you try to be as punctual as possible, life does happen sometimes that may hinder you from timely payment of the bills such as losing your job, having a medical bill to attend to or even forgetting the due date. But there are things you can do to get back on track faster.
- You need to call your creditors as soon as you miss a payment and inform them. If they are, kindly ask them whether they can eliminate the late fee and put your account as ‘paid as agreed. ’ This can prevent the late payment from being reported to the credit reporting agencies.
- Check if you are eligible for an economic hardship program that places your accounts on hold for 6 months or more while you pay the outstanding balances. In general, late payments do not get reported if one is signed up for these programs.
- Avoid applying for new credit, as this increases your available credit and will be considered by the credit bureaus when calculating the percentage of credit used. New inquiries and accounts will be reported in a less favorable light until your scores have time to heal.
Be vigilant, maintain low balances, and ensure all bills are paid as and when they are due. This means that even if you had one 30-day late payment, it will not follow you for a long time provided you conduct yourself well in the future. Don’t let it discourage you, instead use it as a reason to strive for and maintain a good credit rating through proper handling of finances.
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