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What is a late payment?
A late payment is exactly what it sounds like—a payment you make toward a debt after the due date specified on your account statement.
Late payments can have negative effects on your credit, your finances, and your relationship with your creditor. How much of an impact they have depends on how late the payment is.
Timeline of a late payment
When discussing the timeline of a late payment, you need to understand three important dates:
- Account closing date: This is when your lender creates your billing statement specifying what you owe. This date comes at the end of your billing cycle. Billing cycles for credit cards generally last 28 to 31 days, but this can vary from lender to lender. 1
- Payment due date: This is the date that your minimum payment is due. You can find it on your billing statement. Your creditor may impose penalties like late fees if you don’t pay your debt by this date.
- Reporting date: This is the date your lender reports your account information to the nationwide credit bureaus (Equifax, Experian, and TransUnion). It’s up to your creditor which bureau they report your information to, if they report it at all.
With these dates in mind, here’s the sequence of events that occur when you have a late payment:
1. Your lender creates your billing statement
As mentioned, on your account closing date, your lender will create something called a billing statement. This will tell you the total amount that you owe, as well as your “minimum payment,” which is the smallest amount that you can pay to keep your account from becoming delinquent.
You don’t have to pay on your account closing date—your billing statement will mention when your minimum payment actually is due.
By law, the payment due date for credit cards must be at least 21 days after the account closing date and must be the same every month (e.g., the 15th of the month) except when it clashes with a weekend or public holiday. 2 Other types of credit accounts may function differently.
2. You miss your payment due date
If you’re late making your minimum payment, even by only one or two days, your lender may penalize you with late fees or an increase in your interest rate.
What counts as a late payment and the specific penalties you’ll face will depend on the terms of your credit agreement. If you’re lucky, you’ll have a grace period after the payment due date, which will give you more time before your payment is officially considered late.
Credit card issuers can charge you fees equivalent to the smaller of the following: 3
- An amount equivalent to the minimum payment that you missed.
- Up to $29 for a first late payment then $40 every other time you pay late during the next six billing cycles.
Regardless of whether your payment is for a credit card, installment loan, or other type of credit account, the late payment won’t affect your credit immediately after you miss your payment due date. That doesn’t happen until the next step in the timeline.
3. The late payment appears on your credit report
The reporting date is when your creditor reports your account information to the nationwide credit bureaus. This is also when the late payment will be added to your credit report.
Your creditor won’t be able to report a late payment until 30 days past the payment due date, so payments that are less than 30 days late typically won’t show up on your credit report. 4
A 30-day late payment will show up as a derogatory mark on your credit report and will hurt your credit score. How much it’ll bring down your score depends on your credit history and what your credit score was like to begin with, but you’ll generally take a harder hit if your score was higher initially. 5
4. Your account becomes progressively more delinquent
Unfortunately, if you continue to fail to pay your debt, your lender will report it to the bureaus again after it passes certain thresholds. Specifically, your lender may report your payment when it reaches 60, 90, 120, and potentially 150 days late. 6
Once your credit card payment is 60 days late, your card issuer is allowed to increase your interest rate. However, they must lower the rate again if you go on to make all your payments on time for the next six months after the increase. 7
The later your payment is, the greater the effect will be on your credit score. For example, in a simulation of how different credit actions impacted consumers’ FICO score, a 30-day late payment caused score drops ranging from roughly 20–80 points, whereas a 90-day late payment caused score drops of up to 133 points. 8
5. Your debt is sent to collections
Once your account becomes very delinquent, your creditor may give up trying to collect money from you and charge off your debt. This usually happens after 120 days for loans and 180 days for credit cards. 9
After charging off your debt, your creditor may then transfer or sell it to a debt collection agency. Your account will then appear as a collection account on your credit report.
Although there are a few ways to remove collections from your report, they’re not guaranteed to work. This means that you may have to deal with a significant drop in your credit score.
How do late payments affect your credit score?
Late payments can be incredibly damaging to your credit score. This is because both of the major credit scoring companies (FICO and VantageScore) treat your payment history as the most important factor when calculating your credit score.
As mentioned, the exact number of points you’ll lose depends on your credit history. Specifically, it depends on the following factors:
- How recently you missed your payments: The impact of derogatory items like late payments diminishes over time, so a more recent late payment will have a more severe effect on your credit score. 11
- How late the payment was: The later a payment is, the more your credit score will suffer. Always try to catch up on payments as soon as possible to minimize damage to your credit score.
- Your original credit score: If you have a good credit score, then a single late payment can cause a lot of damage; conversely, if you have a bad credit score, a late payment won’t make a major difference. 8
- The number of payments you missed: Each late payment damages your credit score, so having multiple delinquent accounts is worse than having just one.
How long does a late payment affect your credit?
Late payments can stay on your credit report for up to seven years. 12 Their effect on your credit score will probably wear off long before that time, they can still affect your eligibility for new credit accounts. The same is true for collection accounts and most other negative marks.
The good news is that the effect that a late payment has on your credit score will diminish over time. Keeping on top of your future payments and taking other steps to fix your credit can help your credit score recover faster.
How to recover from a late payment
There are a few things you can do to rebuild your credit after it’s sustained damage from a late payment:
- Make sure that you’re current on all your accounts: Before you can begin improving your credit, you’ll need to fix any problems that are currently bringing your score down. If you still have any overdue balances, you should begin by paying them off.
- Keep your debt-to-credit ratio low: Limit how much of your available revolving credit you’re using. This percentage is referred to as your credit utilization rate, and it’s one of the most important factors contributing to your credit score.
- Don’t open new credit accounts unless necessary: If you’re struggling to keep on top of your payments, then it’s a good idea to refrain from taking on any more debt that might cause you financial strain (and from incurring hard inquiries that will lower your credit score even further). Instead, keep your old accounts open and focus on using them responsibly.
How to get late payments off your credit report
There are three main ways to remove late payments from your credit report:
- If it’s a mistake: File a credit dispute
- If you paid the debt: Send a goodwill letter
- If you still owe the debt: Negotiate pay for delete
It’s worth noting that unless the late payment is there by mistake (e.g., your creditor reported an on-time payment as late or the credit bureaus have confused you with someone else), there’s no guarantee that you’ll be able to get it removed. Nevertheless, there’s no harm in trying.
To access your credit reports from the three major credit bureaus (Experian, Equifax, and TransUnion), visit AnnualCreditReport.com. Review each report to find out whether you have any late payments, and from there, take one of the approaches listed above. If you’re struggling or feeling overwhelmed, consider getting help from a credit repair expert.
How to avoid late payments
The best thing you can do for your credit is to take measures to keep yourself from making late payments at all.
Here are some reliable tips for avoiding late payments:
- Ask to set your own payment due date: Some creditors allow their customers to choose their own payment due dates. If yours do, you can schedule your due dates around your paydays or group them together so they’re easier to remember.
- Set up reminders: Try setting text alerts, calendar reminders, or “electronic nudges” to remind you to pay your upcoming bills. The most important thing is to find a method that works for you, so experiment if necessary until you find a suitable approach.
- Set up automatic payments: This is a great approach that can relieve some of the stress of paying bills, as long as you don’t put yourself at risk of an overdraft. Create an automatic payment for at least the minimum amount you’re required to pay to make sure your account is never late. You can always go online later to pay off the remaining balance to avoid accumulating interest charges.
Fortunately, there are always ways to prevent late payments from happening, as long as you’re determined. By learning some of the basics about your payment history and how credit works, you’ve already taken the first step toward improving your financial health.