You’re paying your bills each month, just not on time. A late fee pops up every now and then, but you dismiss it even though it takes a bite out of your already tight spending plan. Besides, everyone has an occasional late payment, and it’s no big deal, right? The truth is, each late payment bruises your financial health and each new blow causes more damage than the one before. Heal your credit report by first gaining an understanding of how late payments hurt your credit. Only then can you begin the path to recovery.

What’s Considered Late?

Generally, payments not made within 30 days of the due date are reported to the credit bureaus (Equifax, TransUnion, and Experian). Missing your due date by a day or two may not impact your credit score but be prepared for forgetfulness or lack of organization to cost you.  Paying a few days late often results in penalty fees and can even trigger an interest rate increase on credit cards.

Yes, Even One 30-day Late Payment Hurts Your Credit Score

Payment history accounts for at least 30% (or more) of your overall credit score – depending on the scoring model used. Recent and consecutive late payments are the most harmful to your credit score. Get caught up as soon as possible and pay the creditor on time as agreed.

Payment History as a Future Predictor

All payments matter. Credit card companies, student loan lenders and financial institutions aren’t the only ones who report late payments to credit bureaus. Your cell phone provider, landlord, and utility company report on credit accounts that have reached collection status. Potential creditors look at how well you’ve met your financial obligations, regardless of the source. Inability to make payments as promised is believed to indicate that you’re unlikely to repay future debts in full or on-time.

Delinquent and Collection Accounts Are A Red Flag

Accounts that do not receive payment after a certain time period may be deemed as delinquent. Some creditors will call an account delinquent after 90 days of no payment, while other creditors will do so at 60.  Once an account goes 120 days with no payment, collection activity is likely to begin.

A record of delinquent or collection accounts on your credit history report can do more to tank your credit score than a single late payment since it reflects an ongoing pattern of non-payment.

This behavior indicates that a consumer is unlikely to repay any new credit. If new credit is not outright denied, a creditor may use this as an opportunity to offer high-interest rates to risky borrowers or require additional deposits for services that would typically require none.

Delinquent Payments Stay on Your Report for 7 Years

A history of late or delinquent payments stays on your credit report for seven years from when they were first reported. The impact of a delinquent or collection account begins to fade as more on-time payments are recorded. If you’ve missed your last few payments, bring your account current as soon as possible to avoid further damage to your credit.

Paid Collection Accounts Don’t Automatically Disappear

Paying off an account that’s gone into collections doesn’t remove it from your credit report. Other accounts that have recently been paid in full also remain a part of your credit history. It’s possible to talk to your creditor and work with them on removing the negative mark when you pay it off. However, it’s at the creditor’s discretion to modify the payment history once the account is paid in full.

Thinking about settling a collection account? Remember, creditors want to be paid as described in the original payment agreement and settling the account for less than owed can do more harm than good. The creditor may be less likely to remove the negative information since the account was never paid as initially agreed. Creditors report settled accounts to the credit reporting bureaus.

 

Paying bills on time is the most significant contributor to your credit score. Take simple steps to prevent a negative entry by setting up automatic payments from your checking account or using e-payment reminders. If late payments result from a decrease in income or increase in expenses, revisit your spending plan and make adjustments as needed. You have to give it time, but your credit will improve. Good credit scores are critical to your financial health since they not only determine your ability to borrow money for major purchases like a home or car but can also influence how much you pay for your cell phone, insurance, and utilities.