How late payments affect your credit report

Whenever you make a late payment on one of your current liens or debts, such as a credit card, it will have negative effects on your credit report card. Banks and lenders are very strict on the payment history of an applicant who is requesting a new loan. If the credit report even shows one month on a debt account that had a late payment, it will immediately be a red flag to them. A history of late payments shows lenders that you are a credit risk, which means they will be nervous about issuing you another loan or credit card. But if you have a history of on-time payments, they will likely grant you a new loan.

Credit Bureaus

        Lenders typically give debtors some leeway when it comes to late payments. For example, if you are two days late paying your mortgage premium then it likely won’t get reported to any of the three credit bureaus. Your lender will just charge you a late fee and add that to the premium. However, if your payment ends up being more than 30 days late, this is when lenders tend to get nervous. At this point they will notify the three credit bureaus, Experian, Equifax, and TransUnion, about the late payments. Once they are notified, the late payments will show up on your credit report for future lenders to see. This late payment history will stay on your report for up to seven years, which means it will be hard to get another loan during that time.

Credit Score

        When late payments are reported to the three credit bureaus you can be sure that your credit score will decrease. The payment history on a credit report affects 35% of your total credit score. All it takes is one reported late payment and your credit score could drop up to 35%. Of course, there are other variables that determine the percentage in which your credit score drops. It can depend on how late you were with the payment, what your credit score is and if you have a history of making late payments. So if you have a low credit score with a long history of late payments, then you might get the full 35% drop in your credit score. On the other hand, if you only had one late payment with a high credit score then you may see less than 10% in the drop.

Collections

        The worst thing that can happen is the lender sends your debt account to a collection agency. If you have a dangerous habit of making late payments that are well beyond the 30 day threshold, your lender may not be so patient anymore. They may just determine that your account is delinquent and then send it off to a collection agency for them to recover the debt. Even if you don’t have much debt on the account, a delinquency will surely cause more damage to your credit report than a few minor late payments. So if you have to be late with your payments then try not to be too late or else you might not get another chance to pay it again. The amount of days you can be late varies between lenders. Some lenders won’t take action with a collection agency unless you are 120 days late. But if you are frequently late beyond 30 days then they may do it anyways.