How Do Late Payments Affect Credit Score?
Everyone goes through unexpected financial emergency, a lost job, or even a simple oversight could cause you to fall behind on your payments.
If you miss a payment on one of your credit accounts, whether it be a credit card, mortgage, or other loan, you could see your credit score drop. As a result, lenders may view you less favorably when applying for funding.
Lenders use the information on your credit report to gauge your risk as a borrower, and your payment history has the strongest impact on your credit score. While a history of on-time payments suggests you are a consumer who will likely repay your debt on time, a history of late payments could suggest to creditors that you are a risky borrower.
If you have a payment that is more than 30 days late, your creditor will report it to the credit reporting agencies. In this case, the late payment will show up on your credit report and be factored into your credit score. Late payments will be listed on your credit report depending on how late they are as: 30 days late, 60 days late, 90 days late, 120 days late, or 150 days late.
How much of an effect does one late payment really have on my credit score?
The degree to which a late payment may affect your credit score can depend on multiple factors. When it comes to your credit score, for example, a late payment will be evaluated based on how severe it is, how recent it is, and how frequently you’ve paid the account(s) late.
Each credit reporting agency has its own model for evaluating your information and assigning you a credit score, so your scores will vary between each bureau. Also, be advised that your credit
Although, the longer a bill goes unpaid, the more damaging the effect it has on your credit score. For example, all other things being equal, a payment that is 90 days late can have a more significant negative impact on your credit score than a payment that is 30 days late. In addition, the more recent the late payment, the more negative of an impact it would have.
One late payment could have a more significant impact on higher credit scores. For instance, a 30-day delinquency could cause as much as a 90- to 110-point drop on a score of 780 for a consumer who has never missed a payment on any credit account.
In comparison, a consumer with a 680 score and two late payments (a 90-day delinquency on a credit card account from two years ago and a 30-day delinquency on an auto loan from a year ago) would experience a 60- to 80-point drop after being hit with another 30-day delinquency.
If you miss a payment, even just one the late payment would remain on your credit report for up to seven years. If you fall in the habit of paying late, your account could be charged off or sent to collections, which could further dent your credit score.
In addition to lowering your credit score, a late payment could also cost you in the form of late fees and higher interest rates. If you pay your credit card bill even one day late, for example, you could be charged a late fee. Your creditors may also raise your interest rate if you regularly miss payments, which would mean you’d have to pay more money in order to carry a balance.