Mortgage 101: How Late Payments Affect Your Credit Score

Posted by Laine Smith on 4/12/15 12:00 PM

Topics: Purchasing A Home Credit Score First Time Home Buyer Preapproval home buying

Are you making your credit card and loan payments on time? It's important to stay on top of all of your bills, because your payment history is the most influential component of your credit score, accounting for 35% of your FICO® score determination. Here's how a late payment downgrades your number.

LATE_PAYMENTS_AND_CREDIT_SCORE

FICO® considers the affect of late payments using these general criteria:

  • How recent the late payment(s) occur
  • How severe the late payments are
  • How frequently the late payment(s) occurs

This criteria means that a recent late payment could be more detrimental to your FICO® score than a number of late payments that occurred years ago.

The Effects of Late Payments

On-time payment history suggests that you are a reliable and creditworthy borrower. So when you make a late payment, any of the following could happen, depending on your credit card company or lender:

  • You will be charged a late fee. Even if your payment is made a single day after its due date, you could be charged a late fee. Typically, credit card companies charge late fees in the range of $25 to $35, which will show up on your next billing statement.
  • Your interest rate may go up. Some credit card companies reset your interest rate to a penalty APR much higher than your standard interest rate in the instance of late payments. If you applied for a credit card with a promotional 0% APR for a certain amount of time, many credit companies will revoke the promotional rate if you default during the promotional period.
  • It will end up on your credit report. When a payment is made more than 30 days late, the three major credit bureaus (Experian, Equifax and TransUnion) are typically notified, meaning the indiscretion will be listed on your credit report based on how late they are: 30 days, 60 days, 90 days, 120 days, 150 days or charged off. Late payments can stay on your report for up to seven years.
  • Your score will go down. Just one late payment can drastically affect your credit score, especially if you have good to top tier credit.

How Much Will My Score Go Down?

The amount your credit score will decrease depends on multiple factors listed above, though each credit reporting agency has its own model for evaluating discrepancies. In general, the longer your bill goes unpaid, the more detrimental it is to your score and the higher your credit score, the bigger effect a late payment has.

According to FICO® data, a 30-day delinquency can cause your score to drop as much as 90-110 points for a consumer with a 780 credit score who has never missed a payment before.

What to Do if You Miss a Payment

If you've missed the due date on a bill, accidentally or intentionally, pay it as soon as possible to avoid any further damage to your score. For future reference, take these steps to avoid this common credit mistake:

  • Consider automatic payments or put a reminder on your calendar. Most credit cards offer direct auto-billing, which can be helpful if paying your bill on time often slips your mind.
  • If you know you are going to be late with a payment, contact your creditor to work out a payment plan.
  • Regularly monitor your credit report. Mistakes can happen, so dispute any errors regarding late pays with your creditor and make sure late payments are removed from your credit report after the appropriate amount of time has passed.

For more information about credit and home financing, download our free Mortgage 101 Handbook for everything you need to know about buying your first home.

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