How late payments can affect your credit

Young woman sitting in front of a glowing laptop and learning about how late payments can affect credit scoresImage: Young woman sitting in front of a glowing laptop and learning about how late payments can affect credit scores
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Life happens.

Sometimes that means you have to prioritize other expenses and make a late payment on your credit card or other loan. Or maybe a bill simply slips your mind.

No matter the reason, we know that missing a payment isn’t a good feeling — especially since it can affect your credit.

Read on to learn about how late payments on a credit card or loan can affect your credit health and what you can do if it happens to you.

What happens when you make a late payment?

It depends on how much you owe and how late your payment actually is, but there’s no getting around it: Late payments can hurt your credit.

If you can, pay off the overdue account in full within 30 days of missing the payment. This will keep your account from going into default. If the account continues to go unpaid for 60 days, you could see another negative impact to your scores. And after 90 days, your account might be reported as delinquent, which will continue to have a negative impact on your overall credit health.

Here are some things you might encounter after making a late payment on a credit card or other line of credit.

  • You could be charged a late fee. If you pay your credit card bill a single day after the due date, you could be charged a late fee in the range of $25 to $35, which will be reflected on your next billing statement. If you continue to miss the due date, you can incur additional late fees.
  • Your interest rates may rise. Paying your creditors late may result in an increase in your interest rate, often resetting your interest rate to a penalty (or default) APR. For credit cards, the penalty APR is often as high as 29.99%, which means you’ll pay significantly more in interest on your outstanding balance if it’s triggered. If you have a promotional 0% APR on a balance transfer credit card, paying late may also forfeit your 0% promotional rate and reset it to the default interest rate.
  • It may end up on your credit reports. If your payment is more than 30 days late, the three major credit bureaus are usually notified, meaning the late payment will show up on your credit reports. A late payment could stay on your credit reports for up to seven years.
  • It might decrease your credit scores. Payment history information typically accounts for nearly 35% of your credit scores, making it one of the single most important factors in calculating your scores. Just one late payment can dramatically lower your credit scores, especially if you have good or excellent credit scores. Depending on how late your payment is, how frequently you pay late, how much you owe, and what your credit scores are, late payments can really affect your credit.

The consequences of making a late payment can feel harsh. But don’t let it discourage you from working toward future financial goals. Credit scores can bounce back with time, hard work and patience. The best thing you can do is start working on rebuilding your on-time “payment streak” if possible — even if that means making the minimum payment each month. Making more and more on-time payments and actively reducing the amount you owe can diminish the impact on your scores over time.

And, as best you can, don’t let future payments become delinquent or get sent to collections. An account reported in collections could stay on your credit reports for up to seven years and cause even more damage than a late payment.

Why do late payments impact your credit?

Payment history is one of the key details that banks and issuers consider when deciding whether or not to approve you for credit.

A poor history of on-time payments suggests to banks and issuers that you may not repay debts and could result in a costly loss to their business.

Because of this, payment history is one of the most important factors that goes into calculating your credit scores. So when you miss a payment or make a late payment, it can have a more dramatic impact on your scores than something like a hard inquiry.

What to do if you’ve made a late payment

If your bills are past due, the sooner you can pay the bill, the better. The damaging effect of a late payment on your credit scores can increase the longer you wait.

If you’ve made a late payment recently, here are some things you can try.

  • Request removal of a late payment fee. If you’re in otherwise good standing with your bank, or if it’s your first time missing a payment, consider asking your bank to forgive or remove the late fee.
  • Work to reset your penalty interest rate. If a late payment caused your interest rate to increase, your issuer is generally required to reset your interest rate back to the pre-penalty rate if you make six months of on-time payments. If you can, make it a goal to get back on track with on-time payments, which could help you pay less interest on your accounts in the long run.
  • Pay all accounts on time. If a late payment caused your credit scores to drop, the best thing you can do is to continue making on-time payments on all of your accounts. After a few months of consistent on-time payments, your credit scores could slowly improve. An easy way to prevent late payments is to set up automatic payments and email or text reminders on your financial accounts.

Finally, keep track of your overall credit health by checking your free credit reports from two of the three major consumer credit bureaus on Credit Karma. We break down the factors that can affect your scores, so you can keep an eye on your payment history along with other important areas. Paying on time every month could help you build a positive credit history and improve your credit scores over time.