How Much Does A Late Payment Affect Credit Score?

Late payments are one of the factors that can negatively impact your credit score, but it is always good to know how much of an effect it will have on your score.

A credit score is central to most people’s financial lives. It influences everything from credit card and loan approvals to interest rates and security deposits on utilities. That’s why having and maintaining a good credit standing is of great significance. A single missed payment might not seem like a problem, but it can significantly harm your credit score. Here, we’ll focus on how many points a single missed payment can cost and how long it may take to rebuild credit.

The Consequences Of One Missed Payment

Credit scoring models consider your credit history in its entirety, however, recent events such as a missed payment are given higher importance. That is because credit bureaus consider it as evidence that you are prone to miss future payments. One missed payment that is 30 days late could potentially result in a reduction of your credit score by up to 110 points. The more points you had before the late payment, the bigger the difference. A borrower with a FICO score higher than 780 would lose anywhere between 90 and 110 points, while a borrower with a score in the 600s could lose just 40 to 50 points. These are substantial declines that demote many borrowers to a worse credit grade.

FICO and VantageScore, the two most popular credit scoring systems, consider five primary factors to determine your score. The payment history is the most impactful at 35%of FICO and 30% of VantageScore. This component of your score can be significantly damaged by one late payment. The other main factors also probably get small deductions from a single late payment. This is because you may have been financially constrained, and therefore, needed to carry forward a balance; this will push up your credit utilization ratio. The late payment may even reduce the total amount of credit available to you if it is a sizable amount.

How Long Does Late Payment Hurt Your Credit Score?

One bad payment can affect your credit report for years to come. FICO and VantageScore both allow closed late payments to remain on a credit report for seven years from the time of original delinquency. However, this affects your score negatively but the effect is not permanent; it is momentary in the event you correct the blunder. Generally, here is how long one 30-day late payment affects your credit.

1 Year – The alteration of credit is still recent thus it goes on to affect the credit score greatly. You should expect to get between fifty to a hundred points lower depending on your initial score.
It is at this point that the late payment is not such an issue anymore: 2 Year – The penalty is no longer that big of a deal. However, you may still be a candidate with a 20-50 point lower score.
3-4 Years – At this point, the effects of the late payment reduce every year. This means that after four years, you might only be dealing with a 5-20 point drop.
5 Years – It is five years today that the payment was delayed. If all the other things are fine, the one that is left probably will only drop your score by 5-15 points.
6-7 Years – As the due date of the late payment gets closer, it is almost negligible – probably less than 10 points.

After seven years have elapsed from the date of the first delinquency, this payment is expunged from your credit report. However, after that, it loses the capacity to impact your score negatively. Remember, the authorized users on credit accounts could have late payments removed prior because the delinquencies are not necessarily linked to their credit reports.

Measures to Take When One Is Paid Late

Even a single late payment can take years to reverse its effects on your credit rating. However, there are some things you can do to start fixing some of the damage and increase your credit score more rapidly.

Pay-Off Balances – It is worse to keep high balances, especially after making a payment after the due date. Lower the balances owed on credit cards to reduce credit utilization.
Request for goodwill adjustments – You can be able to negotiate with the lenders and have the late payment deleted from your credit file. Write a letter of apology to the recipient assuring him/her that it was a one-time occurrence.
Dispute It - If you have evidence that the late payment was made on time or if it was reported in error, dispute it. If the furnisher cannot verify it, then the credit bureaus may remove it.
Get an Authorized User Account – Request a family member or a friend with a good credit score to list you as an authorized user. It could be useful in increasing your rating as you reconstruct.
Avoid Applying for New Credit – Every credit application usually reduces it by a few points when one is rebuilding. It is important to apply only for the necessary accounts.

The best way to deal with this is to improve every other aspect of your credit as this will help in reducing the strength of the late payment. For instance, paying off some credit card balances will assist in raising your credit score.

Write letters to creditors for goodwill adjustments

In addition to contacting the credit bureaus to dispute the information on your credit reports, the other effective method to probably get a late payment deleted is by asking your creditors for goodwill. This entails undertaking a goodwill letter where you formally request them to show lenience and drop the late mark out of courtesy. There are many occasions where such requirements are relaxed and many lenders do not mind doing so if there is a positive history attached to their accounts. Ensure that sending the goodwill letter after you only make a late payment once in a while and that you have been a good payer most of the time.

Conclusion

One missed credit card payment, mortgage, auto loan or any other payment can lead to a significantly low credit score. The higher starting score means a bigger drop from one 30-day delinquency as compared to the lower starting scores. Even though it remains in your credit reports for seven years, the effects are the worst in the first two years. Dispute letters, goodwill adjustment requests, and sound credit management should help you hasten the process of credit score restoration. However, time is required for this credit wound to heal completely. It’s important to note that much can be done to try and rectify the damage and ensure that an individual does not score even more in the months and years that follow a certain late payment by strictly paying all the bills on time.

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