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How Late Payments Affect Credit Scores

How Late Payments Affect Consumer Credit Scores.

Article By : Patrick Mansfield | U.S. Gov Connect
How Late Payments Affect Credit Scores

Making bill payments on time every month is one of the best ways to maintain a good credit score. However, there are occasions when paying a bill after the due date is unavoidable. The level of how your score is affected typically depends on several factors.

The number one factor affecting your credit score is payment history. According to some financial experts, missing a payment could cause your score to drop 100 or more points. Lenders use how you repaid past debts as an indicator of what you will do in the future. They will review your credit report to decide whether to give you money or credit privileges. 

While the payment history on your credit report is important, not all missed payments are measured equally. The impact to your credit score may depend on several factors such as: 

• Your score before the late or missed payment
• Length of time the payment was late
• Time lapse from the missed payment to your new request for credit

Your Score before the Missed/Late Payment:

Ironically, having a high credit score before you missed a payment causes your score to drop significantly more than if your score was mediocre or poor. A score of 700 or above can plunge by 100 points from one missed payment. Anything less than 700 may drop by only 15 or 20 points. The reasoning in the financial world is that having a credit report with string of negative items is not greatly impacted by one more item. Nevertheless, you should try and avoid making late payments if you want to improve your score.

Length of Time the Payment Was Late:

Creditors do not send information about missed or late payments before the payments are 30 days late. Otherwise, your score is not affected. For instance, if you make a payment on the 25th that was due by the 15th, your creditor will not report it to a credit reporting agency as late.

Additionally, occasional 30 or 60 day late payments do not cause long-term damage to your score. This is most likely the case once you honor the payment and your credit report no longer reflects an outstanding or overdue payment. However, the impact could be negative if you develop a pattern of making payments late.

Time Lapse from the Missed Payment:

In most cases, creditors look at the last two years when determining whether to extend more credit to you. If you missed only one or two payments during this time frame and had no other delinquencies, the impact on your credit score could be minimal.

Whether late payments are a regular financial practice or a one-time mistake, expect some damage to your score.
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