Everyone intends to pay their bills promptly, but sometimes life gets in the way, and you might run short on cash or forget to pay a bill. Sometimes it’s something more serious like an unexpected expense like a major car repair or job loss that throws off your finances. In other cases, maybe you just didn't remember. Whatever the issue, you should know that missing even one payment can surely affect your credit score. Here’s what you must ask yourself.
Does the creditor report to the bureaus?
The first concern is the type of bill you pay late. If it’s your gas or electric bill, you can find yourself without a necessary utility if you don’t pay promptly. However, that won’t necessarily harm your credit, so long as you clear up the bill soon. Some creditors report to the credit bureaus every month like credit cards and auto and mortgage lenders.
Other creditors, like utilities and medical providers, don’t report monthly but will eventually report you if you leave them hanging. That means a delayed payment on a doctor bill won’t immediately affect your credit so long as you take care of it before it goes into the debt collection phase. If you must pick and choose between bills, consider this factor.
How late is the payment?
If you pay by even one day late, some creditors will report you to the bureaus automatically. However, if you have the money and missing your payment was just an error of timing, or you can pay it ASAP, you might be able to reach out to the creditor and ask them not to report you. If you’ve never missed a payment before, they may work with you.
Many creditors have a grace period where, so long as you make the payment within “x” number of days, they won’t report you. Even so, most card issuers and lenders assess a late fee that can be sizable, but they might forego this once, upon request, if it’s a one-time occurrence. If you make the payment within a week of the due date, you might escape reporting to the bureaus.
Are you more than 30 days past-due?
Once you miss a bill and it lingers unpaid for a month, you can count on being reported to the credit bureau by a credit card issuer, mortgage or auto lender, or cell phone carrier with whom you have a contract. Many auto and homeowners’ insurance providers will also report you for non-payment. Unpaid medical bills can usually go 180 days before hitting your credit report.
There are other consequences to paying late. Some card issuers will increase your interest rates. With insurance carriers, you might be rejected for future coverage or renewed at a higher rate. If you're unsure, check your finance agreements in the terms and conditions section to see what happens if you miss a payment or run late.
How much will your credit score drop?
If you run 30 days late on even one payment, you can see a 100-point drop in your FICO score. That can happen the first time you miss a payment. In fact, it’s the first missed payment that hurts the most. Subsequent missed payments will lower your score, but not as much as that first hit. So, never assume that missing just one payment doesn’t matter – it does!
Payment history makes up 35% of your credit score calculation so you can do the math and see that late payments are problematic. Not only does that late payment sting, but it lingers on your report for up to seven years, although the impact will lessen over time so long as you stay current after that delinquency.
Avoid late payments, protect your score
You know the old saying “failing to plan is planning to fail” and that’s true when it comes to your credit score. Here are some steps to take to ensure that you never miss a payment:
- Set up as many bills as possible on auto-payment direct from your bank account.
- Plan to pay bills twice a month, on each payday, so things don’t build up.
- Never charge more on your cards than you can afford to pay off that month.
- Set payment reminder notifications to pop up a few days before bills are due.
- Never leave payments until the last moment in case there’s a complication.