Payment history is the most important determinant of your credit score. A late payment carries almost 35% of weightage, and a single failed or missed payment can drastically bring down your credit score. Your current credit score, the delayed time in making a payment, and the frequency of missed payments together determine how much of a blow your credit score will take.
Delayed or missed payments can stay on your credit report for up to seven years. It is removed after seven years provided that the amount has been repaid and the account is still active.
Late fees are added to late payments. Credit card APRs are generally quite high. If you drive your account into delinquency, there shall be a charge in the form of penalty APR, and you would end up paying much more than you had initially borrowed.
Failing a payment easily spoils your impression in the eyes of the lenders. They would lose their trust in your creditworthiness and increase your APR. If you were under any low-interest promotional scheme, those benefits might even be canceled.
Listed below are a few things that you should do when you miss a payment:
Try to Settle the Account ASAP: Pay the amount immediately when you realize that you have missed a payment. If not the full amount due, pay at least the minimum amount required.
Try for a Waiver: When you miss a credit card payment, an exorbitant late fee is added to your outstanding balance. You could avoid it by approaching the creditor and asking for a waiver. If you have a clean payment history and are careful to be polite enough, this could work. If you could, it would also help if persuaded the creditor to keep the negative information from the report that they submit to the credit bureaus.
Set Reminders for Yourself: If missing payments becomes repetitive, you better be more careful and find a way to remind yourself. Set reminders - it could be a wall calendar, cell phone reminder, or reminders through SMS/email.
Set up Autopay: If you are too lazy to follow up on the reminders, consider setting up automatic payments. Link your credit bill to your savings account and set up an automatic payment on a day before the due date. Also ensure that your account has enough money for the automated transaction.
Keep an Eye on Your Credit Reports: Stay alert and keep a check on how your late payments are affecting your credit score. Lookout for reporting errors. Use mymonekarma’s credit score tracker to stay alert and updated.
Pay on Time Henceforth: Pay bills quickly to prove that you are responsible. If you can show that you are sincerely repaying your balance, your credit scores are more likely to improve. You must verify that the late payment was just an anomaly in your otherwise pristine credit history.
By the way, did you know that you are entitled to one free credit score per year? That’s right! There are some organizations that give you your credit score report once a year for free.
If once in a while you miss your payments and pay it within 30 or maximum 60 days, then it won't cause any lasting damage to your credit score. However, frequent as well as recent (in the last two years) payment failures can be detrimental. A payment delayed by 90 days or more can make your credit history to plummet and mess up your credit score for up to seven years. It indicates that you might repeat the mistake, and you become a risky borrower. Most credit bureaus follow this pattern:
30-60 Days Late: If it is a one-time failure, the damages are less, and you can quickly revive. Recent 30-60 days delay causes the most damage, but it wanes off over time. However, if it happens often, the damage can be severe.
Ninety Days Late: This means severe damage to your credit score. The effects will remain for up to seven years.
120+ Days Late: If your payment gets delayed by 120 days, your debt will likely be sold off to a third-party agency. It could become a 'collection account' or a 'charge-off account.’ Such circumstances significantly damage your credit report. Not only does it bring down your credit score, but it also adds a disparaging remark in the report.
Repossessions or Foreclosures: If you drive your home loan or auto loan account to a high level of delinquency, the blow to your credit score will last for seven years. A negative remark will be added to your credit report as well.
Late payments remain on your credit report for seven years. Yes, that is quite a long time. Worse still, if your credit score gets low enough, you may not get any new loans in the future. That’s terrible news in case of emergencies.
The easiest way to do this is by asking. This means asking your lender to remove the late payment off from your credit report. If they do this, it shall not be a problem for you on the credit report. For this purpose, you can call the lender or write to them. However, you need an excellent reason for this request.
The second way to do this is by negotiating with the lender. And it is entirely legal! For instance, if you are late on payments, you can propose to the lender that you wish to pay off all the remaining debt or loan along with additional charges immediately in return for the removal of late payment records from your credit report.
The third way to do this is quite simple. You pay the debt off to avoid any further trouble.
The fourth way is to hire a lawyer to fight your legal battles for you. This can come useful if the situation is entirely against you.
Now that you know how harmful late payments can be, you should always be on guard. A little effort can save your credit from a lot of harm.
mymoneykarma can help you stay on top of your credit score - sign up with us and track your credit accounts with our effective tools.