Your Credit Score and Late Payments - An Inseparable Marriage
The whole idea of credit is to build trust between you and a lender. Trust that you have the ability to pay a debt. Trust that you will be able to make regular payments. Trust that you can make these payments on time.
So it is no surprise that late payments are one of the single most damaging factors that go against your credit score. After all, you build good credit by making payments on time.
Conversely, your credit starts to go bad when you fall behind on your payments.
Understanding How Late Payments Hurt your Credit Score
It may seem unfair but late payments actually have more of a negative effect if you have good credit. A single late payment can bring your credit score down by as many as 100 points for those with scores of 700 and above.
Stated by a credit repair Austin company, those with below-average credit don’t get affected as drastically by late payments. The reasoning for this is that your credit score reflects what lenders can expect from you.
If you have a high credit score, lenders expect you to be a safe bet. When you have a low score and pay late, you are pretty much doing what lenders anticipated you may do, to begin with.
So, when is a payment considered late?
The truth is if you are late 4 or 5 days on a payment, your credit may not be affected. You will most likely be charged late fees and be subject to higher interest rates, which will be more money out of your pocket.
Still, a late payment doesn’t typically start to affect your credit until it is around 30 days late. This is when creditors will alert one or all of the credit bureaus.
Then, your late payment will be a matter of public record and will show up on your next credit report. This will bring your credit score down. Remember that your payment history makes up a large percentage of your credit score and just one late payment can dock you as much as 100 points.
The Collections Nightmare
What happens when a payment is not only late but delinquent? When an account becomes delinquent (no payments made for one or more billing cycles) it can be sent to collections. This is something you never want to happen if you care even a little bit about your credit.
An account being sent to collections is definitely reported to the three credit bureaus. This will lower your credit score.
Again, if you have good credit, a fresh collections report on your record will hurt a lot more than if you have poor credit. The worst part about a collections report is that one can stay on your record for up to 7 years.
Stay in the Know
Creditors make mistakes. They are not perfect, which is why it is important to check your credit score regularly to make sure there are no errant late payment reports.
Also, know that late payments aren’t necessarily automatic death for your credit score. Their impact on your score lessens with time and you can negotiate with lenders to have them stricken.
Still, the best way to avoid late charges and preserve your credit score is to stay in the know about your reports, spend responsibly and make payments on time.