The Impact of Late Payments on Your Credit Score

The Impact of Late Payments on Your Credit Score.Delays in payments can be very disastrous in as much as they affect one’s financial status more so the credit rating section. Despite the fact that it may not be very wrong at times to make a payment a few days beyond the due date, failure to make the payments attracts dire consequences. Your credit score is one of the most important tools that inform whether you are creditworthy or not, and hence, timely payment is very vital. Here in this article, we will review the impact late payments have on your credit rating, the penalties that these actions attract and how you can counter them.

Understanding Credit Scores

But let us first shed some light on the credit score system before we get into the effects of delayed payment. A credit score is therefore a numerical value which is usually in the range of three digits and represents the credit worthiness of an individual. This score is then used by lenders to estimate your ability to meet debts repayment on time. The higher the score on the scale the more creditworthy you are seen by the lenders, but if the score is low this means the risk you pose to the lenders is high.

Credit scores are typically calculated using the following five factors:

1. **Payment Histories (35%)** – This is by far the most significant criteria towards the computation of credit scores. In this section, it will indicate if you’ve meet previous time obligations such bills payments on time. If for any reason you are late to make the payments or you missed some of them this has very poor effects on the score.

2. **Credit Utilization (30%)** – This is basically the percentage of your total or overall credit limits on your credit cards that are being used or charged on. Paying high balances as compared to your credit limit or high credit utilization ratio works against you.

3. **Length of Credit History (15%)** – As much as possible, you have long credit history, you are lucky because it contributes much on your a score. It also reflects the fact to that lenders prefer to have data on borrowers’ credit for an extended period.

4. **Credit Utilization (8%)** – This concerns the proportion between amounts borrowed and credit limits hence providing you with credit cards, installment loans or a mortgage can increase your score because that demonstrate that you are capable of managing different types of credit facilities.

5. **New Credit (10%) **– This takes under consideration the frequency and amount with which one applies for credit as this is said to pull down the value if done frequently.

As it is widely known, payment history is the most important factor that makes up the credit score, so when late payments are made they can be detrimental to your score if they reoccur frequently.

How Late Payments Affect Your Credit Score

When you delay the payment, you have to know that it doesn’t have an instantaneous impact on the credit score. All the creditors give some time, which is usually one month before they can report the payment to the credit bureaus such as Experian, Equifax, and TransUnion. If the payment is made within the grace period you may not lose your credit score though you are subjected to additional charges.

Still if you miss a payment and it remains unpaid for 30 days it is not reported to the credit bureaus at this stage, but the moment you go beyond this, then hell is let loose. Here’s how different types of late payments can impact your credit score:Here’s how different types of late payments can impact your credit score:

**30 Days Late**

In most cases, if you fail to pay your creditor for at least 30 days/ days, the creditor will report the same to credit bureaus. Making a payment of $100 30 days later, for instance, a consumer turns out to be capable of having a 50-100 point deduction on the score on their credit history. The effect usually deteriorates if one has a higher credit score since he or she has much more to lose.

 **60 Days Late**

If you make a payment which is sixty days past due, then your credit rating will suffer an additional impact. Not only will the credit bureae note this delinquency but your creditor may raise the interest rate or adds other penalties. It will come as no surprise that at this stage, your credit score might be affected even worse than it was when you were 30 days past due.

 **90 Days Late**

If you are 90 days late, your credit score will most definitely suffer the worst effects. A delinquacy can remain on your credit report for up to seven years, and hence, you cannot easily get a new credit, loan or a good interest rate. Also during phase four creditors may come in to start recovery hence exerting extra pressure on the financial strength of their respective airlines.

**120 Days Late and Beyond**

If payment is due more than 120 days then most of the creditors make an attempt to write off the amount. This implies that creditor gives up on the debt, as the chances of recouping it are close to zero, and then put it up for auction within a collection agency. A charge-off is always considered among the worst types of entries and it could well knock down your score significantly. Collection agencies may also use what you can call as vengeful measures to recover the money that means, it creates another stress to your financial life.

How Long Do Late Payments Affect Your Credit Score? 

Late payments are reported for up to **seven years** from the time you failed to meet a payment obligation. Nonetheless, this holds that effects of delayed payments reduce with time provided that whatever led to the delayed payments were rectified later.

The first year, however, is not very favorable for the credit score, but when one begins to act wisely when using credits, the deterioration of the score begins. While paying late has a negative impact on your credit report, the value of that hit decreases as the time passes especially if you will be paying your loan on time in the future. Nevertheless, it does not disappear from a client’s record and can hinder his/her financial performance when applying for a new card or loan until it is removed from the record.

Other Consequences of Late Payments

In addition to negatively impacting your credit score, late payments come with several other consequences that can affect your financial well-being:In addition to negatively impacting your credit score, late payments come with several other consequences that can affect your financial well-being:

**Late Fees**

Any creditor always adds some extra amount of money if you fail to make the required payments in the agreed time frame or if it is just a few days past the agreed time. Such fees may cost as low as $25 or even $40 or even higher if the creditor so wishes or if this is your subsequent missed payments. The consequences are that such fees accumulate and put you further in the hole that is difficult to recover.

 **Increased Interest Rates**

If you default on your payment, some of the credit card companies may increase the interest rate when you continue to pay with the card. This is referred to as the penalty APR and it may go up to 29 percent. 99%. It usually takes several months of timely payments in order to reduce your interest rate back to the normal rate after first it has gone higher.

**Difficulty Securing New Credit**

Credit based relationships depend on the credit score to decide whether to give you credit and under what conditions. Delayed payment also affects the score which gives a bad indication to the credit-granting institutions regarding the borrower. Thus, it can be said that this may lead to a refusal in the issuance of loans or credit cards or if issued, then at a very high interest and with severe conditions.

**Impact on Auto Loans and Mortgages**

This means if in future you attempt to obtain a mortgage or an auto loan, late payments in your credit report will result in a higher interest rate or complete disapproval of your loan. However, if the application is approved you may be asked to pay more money down or gain higher monthly installments.

How to Avoid Late Payments

The good news is that there are several key tactics that one could employ in order to avoid such instances and thus safeguard his/her credit standing. Therefore, if you want to make payments on a monthly basis, it’s very important that you always stay proactive and well-organized.

1. Set Up Automatic Payments

To ensure that you do not make a missed payment, you should find ways of making the payment more natural, for instance, having automated payments of credit cards, loans and other bills. It will make sure that even if you have forgotten, the least you are allowed to pay for the credit is paid on time each month. An easy way is to make payments through your bank or go to the website of the creditor and pay on-line.

2. Create Payment Reminders

If you want to deal with the payments separately, you may find payment reminders useful. Almost every bank and credit card issuing company has a service of sending an email reminder or a text message about the due date. It is also good to set reminders a few days to your due dates by using the calendar of your phone.

3. Budget for Payments

It can be seen that some of the people do not have sufficient funds to pay their dues in time and thus end up making a delayed payment. To avoid this, it is advisable to develop a monthly plan of expenses which also caters for the credit card and loan repayments. This way you have to ensure that at the time of making payments, you will have the money available to make the payment.

4. Make Payments Early

The best way to avoid being caught up with technical issues, or delayed processing is to make your payments a few days to the due date. If we pay this on the 25th your company will be safe in case something goes wrong since some companies receive their money on earlier dates even if their due date is later in the month.

5. Pay 15 if You Cannot Pay Your Debts If Possible Contact Your Creditors

If for any reason you are unable to make the payment then the best thing to do is to talk to your creditors before the due date. Most of the creditors provide consumer-friendly services like, temporary payment schemes or even lower interest rates to prevent you from delayed payment. That way one can avoid receipt of a notice of a late payment from the credit bureaus.

Conclusion

Delays also affect your credit score and most importantly your financial well-being in a very negative way. The effects range from a low credit score to an activation of other charges such as those for lateness and increased interest rates, to mention but a few. But knowing how late payments impact your credit as well as following adequate measures that would ensure you do not get into the danger zone would help you guard your financial wellbeing. If you are able to stick to a program of paying for what you borrow on time, and always plan for how you will repay, then you will be able to have a good credit score, and thus be privileged to be given good rates in the future.

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