When you take out a line of credit such as a mortgage, phone contract or loan, you’ll have to sign an agreement to say you will follow certain rules set by the lender.
The lender will usually outline how much you need to pay them each month and what date these payments must be made.
If you fail to honour these payments as originally promised, this could have an impact on your credit report and ability to borrow money in future.
But do late or missed payments affect your credit score too? Read on to learn more.
Do late or missed payments affect my credit score?
When you pay late or miss a payment completely, your lender will usually contact the three main credit referencing agencies (TransUnion, Equifax and Experian) to let them know.
The credit referencing agencies will then add this information to your credit report, where it can be seen by other lenders whenever you apply for a line of credit.
Lenders will take your credit history into consideration when deciding whether to approve your application or not, so it’s really important that you keep your credit report as healthy as possible.
Late or missed payments can affect your credit score too. This is usually a number ranging from 0 to 999 and is a reflection of your credit report as a whole.
How important is my credit score?
Your credit score is a reflection of your borrowing habits and ability to manage debt effectively.
If a person has a low credit score, this might mean that they’ve struggled to manage their debts in the past. However, it’s also possible to have a low credit score due to a lack of borrowing history.
Having a low credit score can make it harder for lenders to approve your loan applications in future, but some lenders specialise in lending to people who don’t have a perfect track record.
Although your credit score is important, lenders are usually more concerned about your overall credit history.
Lenders look at a number of factors before deciding to let you borrow or not. This may include the types of debt you’ve had in the past, how well you’ve managed them and how much debt you have outstanding at the moment.
They might also look at existing lines of credit that you have available, even if you’re not using them currently.
If a lender looks at your credit report and sees that you’ve missed payments in the past or you’ve struggled to pay on time, they might worry that you’ll do the same after borrowing money from them.
Does one late payment affect my credit score?
Some people assume that missing the odd payment or paying a few days late won’t make a difference as long as they manage their debt well most of the time.
Unfortunately, this isn’t true. Even one or two late or missed payments can affect your credit score.
However, this doesn’t mean your credit score is ruined. If everything else on your report is favourable, you can improve your score by maintaining good financial habits.
By making sure all your debts are paid on time and in full, you can regain lenders’ trust and boost your chances of getting loans in the future.
What counts as a late payment?
If you forgot to make a payment on the day it was due but you pay the money a day or two later, there’s a chance this mistake won’t be recorded on your credit report and your credit score won’t be affected.
Most lenders have grace periods that can range from one day to 10 days. These grace periods are designed to protect people from minor mistakes or banking problems. As long as your money arrives within the grace period, you should be okay.
However, each lender has different rules and some are more strict than others. While some lenders are flexible, others may be quick to report a late payment to the credit referencing agencies.
When taking out a line of credit, make sure you read the fine print on your account agreement. This should explain whether a grace period applies and how long it lasts.
It’s wise to maintain good habits from the start and avoid relying too much on grace periods. You might convince yourself it’s okay to pay a day or two late but if you then forget to make the payment in time, this could impact your credit score.
What should I do if I miss a payment?
If you’ve realised that you’ve missed a payment, pay the money as soon as you can.
Maintaining good financial habits can get you back in lenders’ good books and improve your chances of getting loans in future.
Here are a few ways to improve your credit score.
Avoid too many applications in a short space of time
Did you know that every time you apply for a line of credit, this shows up on your credit report?
If a lender looks at your report and sees that you’ve applied for a personal loan, credit card and phone contract in the space of a few months, this may harm your chances of getting approved.
Some lenders may see this as a sign you’re desperate for credit and could struggle to repay the money you owe.
It’s a good idea to space out your applications as much as possible, particularly if you get rejected. One rejection can lead to another and then another.
Register to vote
If you’re not already registered to vote, getting on the electoral roll can boost your credit score. This is because it makes it easier for credit referencing agencies to confirm your identity and address.
Set up direct debits
Make life easier for yourself and avoid missing more payments in future by automating your payments. By setting up direct debits, you can take the hassle out of the process and ensure your payments are made, whether you remember them or not.
Missed payments can be bad for your credit score, but by managing your finances as best as you can and showing you’re a trustworthy borrower, you can improve your credit rating over time.
FAQs
Late payments can affect your score and potentially affect your access to low rates and the other advantages of good credit. That's why understanding what late payments are can help you make proactive choices regarding your financial health.
How badly do late payments affect credit score? ›
A late payment can drop your credit score by as much as 180 points and may stay on your credit reports for up to seven years. However, lenders typically report late payments to the credit bureaus once you're 30 days past due, meaning your credit score won't be damaged if you pay within those 30 days.
Is being late on a payment good or bad for your credit score? ›
Minimize Credit Score Damage From Late Payments. Paying 30 days or more past due could drop your score as much as 100 points. Try these strategies to manage payments. Bev O'Shea is a former NerdWallet authority on consumer credit, scams and identity theft.
How much will my credit score drop for a late payment? ›
As you exceed 60 and 90 days past due, your score suffers more. If you have a lower credit score to begin with and a couple of late payments on your credit report, then another will likely bring your score down another 60 to 80 points. And every late payment makes it harder to improve your credit score.
Can you have a 700 credit score with late payments? ›
It may also characterize a longer credit history with a few mistakes along the way, such as occasional late or missed payments, or a tendency toward relatively high credit usage rates. Late payments (past due 30 days) appear in the credit reports of 33% of people with FICO® Scores of 700.
How do I remove late payments? ›
The process is easy: simply write a letter to your creditor explaining why you paid late. Ask them to forgive the late payment and assure them it won't happen again. If they do agree to forgive the late payment, your creditor should adjust your credit report accordingly.
How many late payments is considered bad? ›
Anything more than 30 days will likely cause a dip in your credit score that can be as much as 180 points. Here are more details on what to expect based on how late your payment is: Payments less than 30 days late: If you miss your due date but make a payment before it's 30 days past due, you're in luck.
What is the difference between a late payment and a missed payment? ›
They may sound similar, but a late payment and a missed payment aren't the same thing. A late payment is one that's made after the due date but before the billing cycle ends. If it continues to go unpaid after that, this missed payment will likely be added to your credit report and hurt your credit score.
How to ask for late payment forgiveness? ›
A goodwill letter is a formal letter to a creditor or lender, such as a bank or credit card company, to request forgiveness for a late payment or other negative item on your credit report. In the letter, you typically: Explain the circ*mstances that led to the late payment or issue.
Can you have an 800 credit score with a late payment? ›
Your record of on-time bill payment, and prudent handling of debt is essentially flawless. Late payments 30 days past due are rare among individuals with Exceptional credit scores. They appear on just 6.0% of the credit reports of people with FICO® Scores of 800.
Credit scores can drop due to a variety of reasons, including late or missed payments, changes to your credit utilization rate, a change in your credit mix, closing older accounts (which may shorten your length of credit history overall), or applying for new credit accounts.
Why did one late payment drop my credit score 100 points? ›
Missed Payment. One of the biggest reasons for a credit score drop is a missed or late payment. If you have perfect credit and hit a financial roadblock, a 30-day late payment can drop your credit score by up to 100 points. Typically, creditors won't report a late payment until it's at least 30 days late.
Can one late payment ruin my credit score? ›
Even a single late or missed payment may impact credit reports and credit scores. But the short answer is: late payments generally won't end up on your credit reports for at least 30 days after the date you miss the payment, although you may still incur late fees.
Is a 900 credit score possible? ›
Highlights: While older models of credit scores used to go as high as 900, you can no longer achieve a 900 credit score. The highest score you can receive today is 850. Anything above 800 is considered an excellent credit score.
How many credit points do you lose for a late payment? ›
A recently past due payment can cause a drop of 90-150 points on a FICO score of 780 or higher. On the other hand, a person with a 90-day late payment on a credit account from a year ago could see their credit score drop only 60-80 points following a new past-due payment.
How far back do lenders look at late payments? ›
How Far Back Do Mortgage Lenders Look at Late Payments? Mortgage lenders will be able to see all late payments on your credit report, but most will only consider those within the last 12 to 24 months. Remember that any payment that is more than 30 days late will show up on your credit report.
Does credit strong report late payments? ›
We're here to help improve your credit, but if a loan payment is more than 30 days late, you will be reported late to the bureaus, and it may negatively impact your credit score.
What happens if I pay my mortgage 2 weeks late? ›
If you pay after your grace period, but before 30 days, you might be charged a late fee, but there's no credit impact. Once your payment is at least 30 days late, it's reported as late to the credit bureaus. This will lower your credit score and potentially have an impact on future mortgage qualification.
