We all know that late payments are bad for our credit scores. But exactly how bad is it? Well, pretty bad considering. Your payment history makes up 35% of your total credit score. While there are other factors in play, this has the greatest weight. So what exactly happens when you miss a payment? One late payment won’t necessarily lower your credit score right away. It does have the potential to drop it by 60 to 110 points but that would depend on how late the payment is, how recent this late payment is, and how frequently you are late in your payments.
Generally, a late payment will only show up on your credit report after it is 30 days past due. However, there are some payments that do not follow this 30-day rule such as mortgage payments and car payments. There is a risk that your late payment will show up in your credit report. And if you happen to make a habit of making late payments, then your account may get sent to a collection agency which will cause your score to suffer. Plus, the longer it takes for you to make a payment, the more damage is done to your credit score. Aside from having your account sold to a collections agency, the lender may consider your account as “charged off” if payment has not been made for 120 days or even longer. This means that they consider the debt a loss which will result in the mark showing up in your credit report where it can remain for seven years. And should your late payment end in a foreclosure or repossession, this will also be noted in your credit report.
So what can you do to prevent this from happening? Simple, really. Pay your bills on time. Always. How do you do that? You budget your money. You shave off unnecessary expenses. Make sure that you live within your means. You can even request for cash advances online if you’re short on cash at the moment just to make the payment on a bill that is already due. You can pay the short term loan once your next paycheck is in the bank. While it may feel counterintuitive, it will give you more breathing room and prevent your credit score from going down.
If, unfortunately, you did end up being late on your payment, what can you do? If you have a pretty good payment history, you can request for a reverse on the late payment fee. You can also work to make sure that you make all your payments on time. Use a calendar or set up automatic payments if you have to. If you make on-time payments for six months, your lender is usually required to give you back your original, pre-penalty interest rate. While you wait for the negative marks on your credit report to age off, you can put your focus on using as little of your available credit as possible and on paying off all your remaining debt.