Life is rolling along going great. You think everything rocks. You set up auto-payments for all of your bills and you feel great that everything just gets paid on time or early. Then something happens you did not expect.

Perhaps the website of one of your creditors has a glitch or your debit card you used to set up the auto-pay expires. Something happens and dang, that payment to your credit card gets there late.

What effect does one late payment really have?

Late Payment Credit Score Effects

Okay. Just one late payment will not ruin your credit. Take a deep breath. Your credit will be fine. It will recover. You do need to take it seriously though because, as you can see from the factor chart below, payments make up about 35% of your credit score. Here’s what some of the late payment credit score effects are:

5 key factors affecting your credit score

First, There Is the Money Issue

A late payment to a credit card company or a bank for a loan results in late fees. Ah, the dreaded fees. Out damned fees. Prepare for this in advance by knowing the amounts of the late fees you could incur. Even if you plan to make every payment on time, your best defense is a strong offense.

Second, a Late Payment Will Also Damage Your Credit Score

One late payment might not do too much damage, but it will still get factored into your score. Credit bureaus use a constantly updating algorithm that includes each on-time or late payment. It will not hugely damage your score, but it will change it by a few points.

Third, It Could Be a Warning to Other Creditors

A late payment can send up a red flag to your other creditors. They may raise your interest rate due to the late payment – even if it was to another creditor.

What Goes Into My Credit Score?

Your credit score consists of a three-digit number that represents your creditworthiness. These numbers range between 300 to 850. One bureau uses an amended scale that goes up to 900. If you have never had credit, you will have a mid-range score since the bureaus and creditors have no experience with you. This is also true if you have not had a credit card in seven years or longer.

If you have had credit and always paid on time, you will probably have a score in the 800s. It may be 900 on the one scale.

If you have had credit and had one or two late payments, you will probably have a score in the 600s or 700s.

That puts it plainly, but you have the basics of your credit score explained. Other factors, like how much of your credit you currently use, also influence your score. If you have $10,000 of total credit and only use $2,000 of it, you will have a much higher credit utilization score. If you use $9,000 of it, you will not. The credit utilization score factored into your total credit score can tank it or raise it. It is up to you.

Other Organizations That Look at Your Credit

Many besides creditors look at your credit score. This includes banks, employers, insurance companies and landlords. The more recent that late payment, the larger the problem. You need to pay your bills on time for six months in a row to improve your credit score.

While it may only seem like one payment was late to you, every creditor you have got and any person you attempt to gain credit from or any bank with whom you try to do business looks at it as a harbinger of bad credit.

Each creditor on your report has a calendar beneath it that shows your payments for the past 30 days, 60 days and 90 days. Anything past due or late shows up on these calendars. Older items on your credit report have less impact on the score, whether positive or negative.

Late, But Not Too Late

Let’s say you pay a day or two late. That probably will not affect your score much.

If you have made your payments in a timely manner up to that point, a 30-day late payment will not hurt your credit score too much. Do not let your unpaid bills go too long though. Creditors will become concerned if they see that you have let something go for 60- to 90-days. Those later than late payments can adversely affect your credit score. The organizations examining their credit will see this as a pattern of late payments.

Plan Ahead

Perhaps you know that you will need to make a late payment. Maybe you know that your employer has to delay payment or that you must spend your money on a medical emergency.

Explanatory Note

The solution is simple. Phone your creditor and explain the problem. Ask if you can delay the payment. Even if they cannot, you can request they note it on your account and report the note as a part of your credit report update. You can also log into each credit bureau and add an explanatory note to your account. This lets you explain succinctly why the late payment occurred.

You may be able to get the creditor to remove a late payment from your credit report. Ask nicely. So long as you have had a good, strong history of paying on time, they might say yes.

Your Credit Report

Your credit score is one of the items reflected on your credit report. It is the number that a creditor plugs into their own algorithm to determine your creditworthiness and whether or not to extend you credit. This typically happens in an automated manner now. You fill out an online application and the creditor immediately determines approval via an automated algorithm.

If you are applying for a loan, your credit score is a big factor. We, here at Goalry can connect you to a suitable lender based on your credit score information. You just need to fill in the form below:

Credit Reporting and the Bureaus

Three bureaus track all of your data. Each one - Equifax, Experian, and TransUnion – tracks different information. Some major lenders report to all three bureaus, but most creditors only use one. Lenders that loan to those with very poor credit typically skip reporting at all.

This latter point matters a lot if you have taken out a loan to build or re-establish your credit. You need it to get reported that you are making on-time payments.

While every bureau uses an algorithm, they all use a custom one designed by their accountants. How Equifax does it is vastly different than how Experian does it. It also differs from how TransUnion does it.

How Much Do Payments Affect Your Score?

Nearly every credit card, revolving credit line and installment loan requires monthly payments.

30-Days Late

This payment history comprises 35 percent of one’s overall credit score. Now, credit bureaus penalize you for payments 30 days past due or greater. Your lender or creditor might charge you a late fee, but the credit bureau only docks your credit score once a payment is late by 30 days.

Here is another consideration. If you only pay one account late your score probably will not budge much. If you pay all your credit accounts late in a single month or seem to be alternating which account you pay on time and which gets a late payment, you will hurt your credit score and this will appear on your credit report.

All You Wanted to Know About Finances In One Place. Visit Us NOW.

GET MEMBER KEY

Money Management Issues

It will raise a major red flag with creditors, banks and landlords. It says you have a money management problem. It also says to them that you are not living within your means. Living within your means refers to being able to completely pay all bills on time without using credit. At all. You should be able to pay for all of your expenses and life with literal money in the bank. You should be using credit only to enhance your credit score and exhibit your financial health.

If you reach a point where you need to borrow money to pay bills or to purchase something you need; you have hit the point where you need to learn appropriate money management. Financial health is when you choose to obtain a credit card - not when you must have one to put purchases on it so you can continue to live as you have although you genuinely do not have the money to do so.

You should, if you take out a credit card, be using it solely to build your credit rating. That means you charge small things to it each month and pay off the full balance before the due date so that you incur no interest charges whatsoever. The ideal situation is that you have money in the bank and in savings so that you can fully pay all bills on time or early.

Budgeting and Saving

Rather than resorting to credit cards and loans, cut back your expenses. Examine your life. What do you pay for each month that you do not actually use or that there is a cheaper alternative for that you could obtain?

Could you buy K-cups of your favorite Starbucks coffee and make your morning latte at home instead of paying $3 or $4 a day for the coffee at the store? Could you cancel that Amazon Prime membership you never use and watch on the cheaper Hulu? Pay for the shipping the one time per year you actually order from Amazon? Could you switch to a different cell phone plan that costs less or switch carriers altogether?

Reducing your expenses gives you cushion money. You put the cushion money in a savings account where it accrues interest. You then have the savings account to turn to if something happens that delays your pay or an emergency occurs.

In general, though, the longer a bill goes unpaid, the more damaging the effect it has on your credit score. For example, all other things being equal, a payment that is 90 days late can have a more significant negative impact on your credit score than a payment that is 30 days late. In addition, the more recent the late payment, the more negative of an impact it could have.

Consolidate Those Loans

You can easily stop a downslide of late payments by consolidating your loans and credit cards. This is because you will turn the many payments you have into one. You can do this using one of two ways. One works well if you have a lower credit utilization score, one works better for those with a higher credit utilization score.

High Credit Utilization Score

If you have used most of your credit available, your best choice would be to use a non-profit like CareOne, which lets you consolidate all of your credit cards and loans. The non-profit helps you avoid bankruptcy by consolidating and contacting each of the creditors so that you can negotiate a lower bill for each. This also results in a smaller payment each month.

This method works well whether you still have available credit or not. You can use a non-profit to help negotiate. While you can contact creditors yourself, the non-profits, like Care One, have existing, well-established relationships with each major creditor. They are more likely to be able to negotiate a reduced amount owed for you. You could also use the second method of taking out a consolidation loan.

Lower Credit Utilization Score

The other option is a consolidation loan. In this option, you need to have less of your credit utilized. That is because you need to qualify for the consolidation loan. This does not reduce the amount you owe. Using this option, you pay for all of the existing debt you owe. Unless you contact the creditors yourself to negotiate a reduction, you will still owe the same amount.

The consolidation loan may be offered by an organization that specializes in this type of loan or you may obtain the loan from a traditional bank. With this option, you simply make a list of your credit cards and loans, check it twice and add up the amount you owe. You then take out a loan in that amount and pay each creditor off in full.

For a very short time, you will increase your credit utilization since this essentially maxes out all your available credit. It only does so for the quick minute that you need to take out the loan. As soon as it is disbursed, you pay the other creditors and your utilization goes back to 50 percent or less. This method also leaves you with a single payment. You need to make sure that you make that payment every month on time.

Why Choose the Non-Profit?

One of the benefits of consolidating your loans and credit cards is that you can reduce your interest rate. The non-profit option typically offers a standard rate bundled with the non-profit’s service. The loan option means you need to qualify for an interest rate. This is when it helps to have a higher credit score. Your credit score comprises the biggest determiner of what interest rate you will obtain. It also decides if you can go this route at all. You need a high enough score to get a loan, period.

Here’s another consideration. Using the loan option means you keep all of your credit cards. You do not have to close them. You will obtain a loan and pay them all off. This is in direct opposition to what will occur if you use the non-profit consolidation method. When you sign the agreement, you agree that the debt consolidation non-profit can cancel all of your credit cards.

This means you will no longer have credit. You will not be able to add new charges to the cards. Part of your contract with the non-profit also stipulates that you cannot acquire new credit cards or loans while you are in repayment. That probably sounds harsh, but the idea is that you will pay off your existing debt much more quickly if you do not add to your debt.

These non-profits also include a credit counseling and financial counseling aspect. They work with you to make sure you not only pay off your current debt but that you learn how to manage your money properly so you no longer need to use credit. The non-profit programs help you eradicate the debt and learn to stay out of debt. Both can temporarily reduce your credit score. That is because one, the non-profit, can result in charge-offs. The creditor may consider the reduction of debt as a charge-off. This can result in a credit score hit. The loan option maxes out or nearly maxes out your utilization. This can result in a temporary decrease in your score.

You must decide which one is right for you. While the non-profit sounds harsher, it can do you more good. You do need to be ready for it though. You have to either be prepared to take a sudden reduction in spending or you need to have landed a job that provides you more than enough money to pay all your bills in full each month. You will have no credit to rely on after all.

The loan option lets you eradicate many debts all at once, but you still owe the same amount. You have to make that payment each month. Since you still have your credit cards open, you could fall to the temptation of charging new items which will actually make your situation worse. One last reason to consider the non-profit option. Its tough love approach nets you a reduction in debt of between 30 to 60 percent generally. Their negotiators are that good.

In Conclusion,

One late payment probably will not hurt your credit score. It really could hurt you if it begins a trend though. A couple of days late one time, no problem. A month or more late, you lose points. If you really have gotten into trouble and your credit is suffering, think about consolidating to pay it all off quickly. You need to pay on time. It really is that important.

How Does A Late Payment Effect My Credit Score?