How Late Bill Payments Affect Your Credit
Late payments on loans and credit cards can have devastating consequences on your short-term financial future. A late payment will hurt your overall credit health and make you a riskier applicant in the eyes of lenders and renters. If late payments have sufficiently hurt your credit you may even be denied a credit card or the opportunity to rent an apartment.
What Are the Effects of Late Payments?
A late payment will often incur extra fees on the account that was delinquent. If you pay a $20 bill a few days late you may be adding an extra $30 in late fees to the payment. This added cost may be incurred each month that you neglect to pay your bill and contributes to the overall principle which can be further compounded by interest.
Many credit cards with low introductory rates have clauses that raise the interest rate if payments are late. A credit card with 0% interest for the first year can become much costlier when the rate jumps to 29.99%.
Late payments are reported to the three major credit reporting agencies and will stay on your credit report for 7 years.
Your credit score will drop when late payments are reported. Payment history is the single largest contributing factor to your credit score. A study conducted by FICO showed that even a single recent late payment can drop a score of 780 or greater by 90-110 points.
What Can You Do After Making a Late Payment?
If you have a good track record of making payments with a creditor then consider asking for forgiveness. Contact the customer service department and you may be able to have late fees removed and prevent the tardiness from being reported.
Making payments on time in the future will help to repair any damage done by the late payment. Late payments affect your credit score the older they are so re-establishing a consistent track record of paying your bills will help you get back in good standing.
Check if your lender has a rehabilitation process. Student loans in particular offer a program to borrowers on defaulted loans that allow them to rehabilitate the loan. The terms typically require on time payments for a set period of 9-12 months and upon completion will be reported with a history of timely payments.
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