Late credit card payments can happen to the best of us. But constant delay can seriously damage your credit score. If your credit card payment is in arrears, here’s what it could mean for “you future” and how to get you back on track.
How a late payment affects your credit score
There are five different factors that make up your overall credit score. The most important factor that accounts for the largest percentage of your score is your on-time payment history. Making payments on time shows lenders that you can be responsible for your own money and, in turn, might make them more willing to lend you theirs. This is why it is essential that you don’t accidentally miss a payment or have too many late payments. Even a single late payment could hurt your credit score.
Other factors include the length of your credit history, the different types of credit you use, and the total amount you owe. Here is a breakdown of the factors that go into calculating your credit score and the percentage they represent:
What happens when a payment is late?
If we’re talking about a late payment versus an otherwise clean report, you might lose a lot of credit points, but it might take less time to recover. And since a clean credit report usually implies a high credit score, even a big drop could leave you in fairly good shape. (According to FICO, a 30-day late payment can lose 60 to 80 points for a person with a score within 700 points.)
However, several late payments will hurt you more and for a longer time. It is also important to note that any adverse action, whether it is late payments or other actions like collections, is much more damaging to a person with a thin credit history than a person with a large. record and excellent credit rating. These two categories are the easiest to damage and repair.
If you’re in the middle of the field in terms of scoring, you might not see a huge difference (especially if it’s a single or double event). An average score indicates that there is already some level of uncertainty in your score, hence the lower points drop compared to someone who is either new to credit or considered very low risk.
A credit score tries to predict the likelihood that the consumer will default in the near future. Payments on time indicate that all is well. Late payments create uncertainty and may (or may not) be a sign of trouble ahead.
The consequences of a missed or late payment by credit card vary depending on the number of days of late payment. If you’ve missed a credit card payment for a day, it’s not the end of the world. Credit card issuers do not report late payments less than 30 days to credit bureaus. If your payment is 30 days or more late, the penalties may add up.
Missing a payment can cost you the following costs:
- Late payment fees: In most cases, you will be charged a late fee. These fees are often up to $ 40.
- APR penalty: A late payment can cause your interest rate to climb significantly higher than your regular purchase APR. However, penalty APRs can be reduced to regular APRs by meeting certain requirements, such as making two consecutive payments on time.
- Cancellation of 0% APR intro periods: If you have an interest-free introductory period, you risk losing the offer if you are late in paying.
How long does a late payment stay on your credit report?
Late payments that have been reported to the credit bureaus may remain on your credit report for up to seven years from the date the account was originally reported overdue. But not all late payments are reported. Ultimately, it will depend on how quickly you fix the problem. If you are late for even a day, you may incur late fees, but you will not be reported. It’s only when you pass the 30 day mark that you need to be concerned about an overdue payment note on your credit report.
There is one exception to the 30-day rule and you’re late: medical bills. Medical bills are not reported as late until they are six months old. This leaves time to wrestle with your insurance company, provider, or hospital over your bill.
Can You Remove Late Payments From Your Credit Report?
Accurate and timely notes from a credit report generally cannot be deleted. However, if the cause of the late payment was an actual mistake on your part and it is a one-time thing, you can certainly ask your creditor not to report it in the first place. But the key will be to reach the creditor before he declares. It is easier to stop the credit report train before it leaves the station than after it has left.
If you can’t get your creditor to fail to report, you can take steps to minimize the damage. Payment history and credit usage represents 65% of your total FICO credit score. It is therefore in your best interest to avoid late payments and to be mindful of your credit utilization rate. Experts recommend using less than about 25% of your total credit limit. It’s also best to avoid applying for a new credit card unless you really need to and only when you’re fairly sure you’ll be approved.
In a few months, you should see your score return to where it was before, or at least close, even though the late payment note will remain on your credit reports.
How to avoid late payment?
Don’t beat yourself up about a late payment, just try to do better next time. Here are some ways to prepare for success:
- Automate your payments so the payment is automatically deducted from your bank account and you can make sure you’re never late. This is generally considered the ‘set it and forget it’ approach, but it’s not a bad idea to check back every now and then to make sure your payments are being taken from the correct account on the day you have selected. Make adjustments if your pay schedule changes or if you prefer to split your payment.
- Set up payment reminders for yourself on your calendar. Depending on your issuer, you can even adjust your preferences to receive an alert a few days before your payment is due.
- Adjust your payment due date to the day that works best for you and your schedule.