Late Payments and Your Credit Score

By Kevin / October 24, 2016
Late Payments and Your Credit Score

Most people know that late payments will negatively affect their credit score. However, it is often unclear as to how much.

Should you fret over a payment that is a little late? Does it matter how late it is? How much will it affect your score? How long will the score be affected?

These are all questions that are often difficult to answer – but let’s give it a shot!

Factors That Determine Your Credit Score

First, let’s take a look at how your credit score is determined.

The number one factor in determining your score is – you guessed it – payment history. This accounts for 35 percent of your score. As you can imagine, this makes paying your bills on time very important.

Although late payments do not affect the other categories, here are the rest for informational purposes:

  • Length of credit history: 15 percent
  • New credit: 10 percent
  • Types of credit used: 10 percent
  • Debt: 30 percent

Time and Frequency Matter

A payment that is just a little late will do less damage to your credit score than one that is very late.

Those who make infrequent late payments of less than 90 days are not seen as a major risk by creditors. Your credit score will still drop if you are in this category, but it will rebound fairly quickly.

Those who make similar late payments on a frequent basis pose a more serious risk to creditors. They’ll view this as a pattern and your score will suffer more long-term effects in this case.

Think about it this way: How confident would you be while loaning money to a friend who paid his bills late frequently?

Those who wait even longer to pay their bills off will suffer further credit damage.

Individuals who pay bills 90 days or more past due are seen as a serious risk to creditors and their credit scores are lowered accordingly. Long-term damage to your credit score can be expected if you fall into this category.

After this point, it generally does not matter when you pay your bill, as your score will not be lowered any further directly because it is 120 days late and so on. However, the odds of it being referred to a collections agency rise with time and, if that happens, your score will be lowered further.

In all cases, late payments will stay on your credit report for seven years, so it is important to avoid them if at all possible.

The Dollar Amount Does Not Matter

A $100 late payment has the same effect on your credit score as a $1,000 late payment. The creditors are concerned whether or not you paid your bills on time or not. Of course, they are also concerned with how late the payments were, if applicable.

Late Payments Hurt Responsible Borrowers The Most

You’ve paid all your bills on time for a while and one just slipped by. Big deal, right? One late payment for an otherwise responsible borrower can’t hurt, can it?

Unfortunately, a late payment by someone with high credit score can cost that person 100 points or more.

To put this into perspective, that seemingly minor late payment can add thousands of dollars to the final tally if you were to apply for a 30-year mortgage.

This is because of the increased interest rate that you’ll have to pay over 30 years. Those who already have tattered credit scores stand to be least affected by late payments, ironically.

What You Can Do

Obviously, the most simple solution to this problem is to pay your bill on time.

Additionally, check your credit report at least once per year to ensure that there are no inaccuracies on there.

Dispute any inaccuracies as soon as possible and have them removed from your credit report.

A credit report will cost less than $50 in many cases for all three scores and will save you a ton of hassle and possibly money in the future.

After all, if you need money and have to haggle with the credit bureaus for a while about an item that shouldn’t be on your bill, it could drag out for a while and become a major headache. Who wants that?

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