How Long Do Late Payments Stay on Credit Reports
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Whether you had to put money toward an unexpected expense or it just fell through the cracks amid so many other bills, late payment can occur for any reason. As a result, not only will you be penalized in the form of late fees, the creditor may also report the missed payment to credit bureaus which will affect your credit score.
A FICO score of between 300 to 579 or VantageScore range of 300 to 600 is considered a bad credit score, and this can affect you in several ways. For one, you might be seen by financial institutions as someone with a greater level of default risk. This can make it harder for you to borrow, whether it's a car loan, mortgage or credit card. And if you do qualify, you will be charged a higher interest rate. Your insurance premiums could potentially increase, and bad credit may affect your retirement plans as well.
There are a few moving parts to how long a late payment will stay on your credit file, but it'll stay there typically for seven years.
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What is considered a late payment?
Frustratingly, there's no single definition of late payment, also known as delinquency, and when it is reported to credit bureaus varies by lenders.
Generally, if your payment is more than 30 days late, major credit bureaus are notified. As noted, late payments stay on your credit report for seven years even if you bring the account current. So, if you missed a payment in February 2022 but paid it a month later, the late payment will fall off your credit report in February 2029. The seven-year timeline begins from the original delinquency date.
Payment history makes up 35% of your credit score and is the most important factor in determining your score. Being current on all your credit accounts and maintaining a positive payment history gives you a better shot at qualifying for credit and receiving the best rates.
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How late payments affect your credit score
The impact of a late payment on your credit score varies by individual and depends on the type of credit score and your overall credit profile.
If you have an excellent credit score, the hit to your score will be more severe than someone with a fair or poor score. Similarly, longer delinquency will affect your scores more than shorter delinquency; a payment made 120 days past due will negatively impact your score more than a 30-day late payment. And missing multiple payments in a row is definitely worse than missing one payment. If your payment is more than 150 days past due, the account could eventually be charged off by the original lender and assigned to a collection agency.
Each credit bureau has its own method of assigning you a credit score, and a late payment could significantly impact one score at a credit bureau more than on another. But as the delinquency ages, the less impact it will have on your credit, especially if you're working on building your credit.
How to avoid late payments
Set up autopay
The simplest way of late payment negatively impacting your credit score is by setting up automatic payments. You can either tell your bank to make the minimum payment by the due date or allow the creditor to debit your bank account. But before doing so, make sure you have sufficient money in your account before the payment becomes due. Otherwise, you risk the chance of an overdrawn account.
Set reminders
If autopay isn't your thing, consider setting up payment reminders. Just open your calendar app and set recurring reminders before payment due dates. You could also opt-in for payment reminder notifications via text or email through your creditor.
Debt consolidation
If you're juggling multiple credit cards, a balance transfer card could help you consolidate your credit card debt into a single bill. With just one credit card to worry about, this should dramatically reduce the chances of a late payment.
Change due dates
Keeping track of multiple bills each month with different due dates is exhausting, increasing the likelihood of a missed payment. You can adjust your bills' due dates closer to each other. If you're not on a budget, it's best to make on-time payments, and in full, on payday when you have the most cash.
Take advantage of the grace period
Many creditors offer a grace period, which allows you to make a payment a few days late without any additional fees or interest. As long as payments are made within 30 days of the due date, your credit shouldn't be affected negatively.
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How to minimize the impact of late payments
An accurately reported late payment will be reflected in your credit history for seven years even after you make the payment. Credit-reporting agencies cannot remove late payment information from a consumer's report once they've been reported by a lender. That said, there are a few avenues you could explore before it gets to that.
Goodwill letter
Once you've discovered a late payment, and it's the first time you've missed a payment, you may be able to resolve it with the lender before it goes any further. In a goodwill letter addressed to your creditor, you should explain your credit history, the circumstance surrounding the late payment, and demonstrate that you will stay current on your account in the future. This is a long shot, but if you're in good standing with your creditor and the late payment was a one-off case, the creditor might agree.
Negotiate
If you're unable to make the payment, it's a good idea to talk to your creditor to remove any negative information and work out a payment plan that pays off some or all of the late payment that is due.
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How to repair your credit
Make timely payments
This should be a no-brainer, but the easiest way of rebuilding credit after a few slip-ups is to pay any existing loans on time even if it means paying the minimum amount. Your payment history is the single largest driver of your credit score. So when you're working toward rebuilding your credit, you cannot afford to make a payment after the due date.
Lower your credit utilization
Credit utilization is the second-biggest influence on your score and refers to the amount you’re currently using relative to your credit limit. Lowering your credit utilization ratio can help your credit score. Some experts advise using no more than 30% of your total credit limit, while others say you should use less than 10%.
You can begin by looking at credit utilization for your credit cards and then work to bring down the highest ones.
Pay in full
You can build credit by using your credit card and paying on time every time. Pay off your balances
in full each month to avoid paying finance charges. Paying off your balance each month can also build better credit than carrying a balance because it helps keep you from getting too close to your credit limit.
Don't apply for more credit
If you apply for more credit in a short time span, it will make your already bad credit score worse. This includes getting a new card so you can transfer balances or opening a new store card account so you can get a discount.
Get a secured credit card
Many banks and credit unions offer secured credit cards. With most of these cards, your credit line starts out small. You put an amount equal to your credit limit in an account as a deposit. As you show you can pay on time, your credit limit may be raised and you may have your deposit refunded. Fees and interest rates can be high for secured cards, but they can establish a credit record or rebuild existing credit history.
How long does it take to rebuild credit?
Repairing your credit takes time, but you should start seeing an improvement as soon as you start accumulating positive credit information.
What influences a credit score?
Payment history, credit utilization and the length of credit history are the top-three factors influencing your credit score.
How do I maintain good credit?
Making timely payment on your loan, maintaining low credit card debt and applying for credit sparingly are good ways to maintain credit.
The bottom line
Your credit report provides a holistic picture to a lender, and good credit can make financial situations easier and less costly. But life happens, and some payments are made past due, which is reflected in your credit report for seven years. However, it's not the end of the world. You can take steps to rebuild positive credit history and improve your credit.
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Writer
Jasir Jawaid is Joy Wallet's Assistant Editor. He has more than 13 years of experience as a journalist covering Wall Street, equities, financial policy and regulation, and cryptocurrency and blockchain.
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