Will a Late Payment Affect Your Credit Score?

Author: Fundbox Team | April 13, 2021

Is a tight budget making it hard for you to pay bills on time? Many people have experienced financial difficulties since the pandemic and sometimes ends just don’t meet.

What will happen if you don’t make a payment by your due date? Will one late payment affect your credit score? Also, what can you do to fix it? Here are some answers that can help you understand and possibly even improve your score.  

Will a late payment affect your credit score?

First things first, what is considered a late payment? A payment is considered late if it is not paid by the due date. However, whether a late payment affects your credit score or not generally depends on how late it is. 

Both Experian and Equifax say that late payments typically won’t show up on your credit report until a 30 days past your missed payment. So if you are a week or two late, your creditor will often allow you to make your payment without reporting a delinquency, causing a hit on your credit. Further, in some cases, lenders and creditors won’t report late payments until the 60-day mark. Always check with your lenders to understand their policy.

What happens if I make a payment a day late?

While your credit score typically won’t be impacted when you make a payment one day late, you may face some other undesirable consequences, including:

Penalty interest rate

Many credit cards have a penalty APR that can go into effect when you don’t make your minimum payment on time. If you have an attractive APR or a no-interest promotional period, this could throw a big wrench in the benefits your card has to offer. 

For example, the Citi Double Cash Card offers an APR on purchases that (at the time of this publication) ranges from 13.99% to 23.99%, depending on your creditworthiness. However, if you make a late payment or have a payment returned, a penalty APR up to 29.99% can go into effect and remain indefinitely. 

While the penalty APR can only be applied to your existing outstanding balance if you are more than 60 days late, it can be applied to future purchases more easily.  

You can find out if your credit card has a penalty interest rate by checking the interest rates and charges disclosure that comes with the card. 

Late fee

In addition to a penalty interest rate, many companies will charge you a late fee if your payment is even one day late. Late payment fees on credit cards typically range from $25 up to $45, depending on the card issuer. The fee often becomes due immediately along with your past due balance which can make it harder to get caught up. 

If you have never been late before, it’s worth a shot to call your card issuer and request a one-time waiver of the late fee. Some companies will forgive the fee if it’s your first time breaking your payment terms.

Loss of credit card rewards 

Another drawback of paying a credit card late is you may lose your ability to earn and/or redeem rewards. Many card issuers will not pay out rewards according to your rewards plan if the account is not current. Further, you may not be able to redeem your rewards until your account is up to date.

Worst case scenario, you may lose your accumulated rewards permanently if you don’t get your account up to date as is required by your agreement. 

In most cases, you do have some time before a late payment will be reported to the credit bureaus but you may face other undesirable consequences like those mentioned above. Here’s a look at how to minimize the damage caused by late payments. 

What to do if you can’t make a payment on time 

If you don’t think you will be able to make a payment on time, the most important step you can take is to communicate. Running low on funds can be stressful and you may be tempted to just ignore a bill until you can pay it. However, in some cases that’s the worst thing you can do. 

If you are going to be late, you may want to consider calling your creditor or lender. Let them know about your situation and tell them when you will be able to make your next payment. In many cases, they have programs in place to help, especially since the pandemic hit. 

They may be able to put you on a payment arrangement that splits up the balance over time or may be able to help you skip a payment due to a hardship you are facing. By taking proactive action, you may be able to avoid negative consequences like late fees, penalty APRs, and even damage to your credit score. 

If you can make your minimum payment but don’t always remember to pay on time, you may want to sign up for automatic minimum payments. Each month, the minimum payment amount will be automatically withdrawn from your bank account and sent to your creditor so you don’t have to worry about it.

How long do late payments affect your credit?

How long does a late payment stay on your credit report? If a legitimate late payment is reported to the credit bureaus, it will stay on your credit report for seven years from when the original delinquency occurred. After the seventh anniversary of the late payment, it will fall off your reports and won’t impact your credit score any longer. 

But how big of an impact does a late payment make on your credit? Paying bills on time is the most influential action you can take to boost your credit, accounting for up to 35% of your score. Further, future lenders, landlords, creditors, insurers, etc. want to see that you make your payments on time. 

If you do miss a payment by 30 days, your credit score could drop by anywhere from 20 to 80 points. If your payment is 90 days late, the impact will worsen and you could see a drop of up to 180 points. The amount your score will drop depends on multiple factors including your starting score, credit utilization, revolving balances, credit history, recent inquiries, and delinquencies. 

How do I fix a late payment?

If you made a late payment, the damage has been done. While you may be able to contact your lender or creditor to ask for a one-time courtesy credit to cover a fee, the best thing you can do is prevent the problem from happening again. 

Take a look at why your payment was late. Are you a business owner who is experiencing late payments from your clients or customers? If so, you may want to consider payment strategies to ensure your income is coming in on time. 

Did you have a surprise expense that put you behind? Strategize how you can build an emergency fund for that kind of situation. 

And if you are facing difficulties due to the pandemic and need further assistance, look into the current government relief programs available for small businesses. 

Most of us will face a time when money gets tight for one reason or another. Luckily, you do have some leeway when it comes to late payments. In most cases, you’ll have 30 days to catch up before it will impact your credit report. However, it’s best to try and get caught up as soon as possible and take steps to prevent late payments in the future. 

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