What Happens When You’re Late on Your Payments?

Dear CFB,

When you are late on your debt payments, two things typically happen: Your lender reports the delinquency to the credit reporting companies, and you are charged a late payment fee.

In some cases, you may also lose access to a promotion or benefit, such as a low introductory interest rate.

Your Lenders May Be Willing to Work With You

If you are having financial difficulties and think you may not be able to make a payment on time, contact your lenders to discuss your situation as soon as possible.

If you've been affected by the COVID-19 pandemic, your lenders may have programs in place to assist you during this time. For example, your lender can choose to place an account into deferment or forbearance. This means that your payments would be paused for a specified period of time.

According to the CARES Act enacted to assist consumers affected by the coronavirus pandemic, if an account is placed into forbearance and reported to the credit reporting companies accordingly, the forbearance should not have any negative impact on your credit scores.

How Will a Late Payment Affect Me?

Payments that are 30 days or more past due are typically reported to the credit bureaus and remain on your credit report for seven years. Your payment history is the most important factor in credit scores, so even one missed payment can have a substantial effect. The good news is, the longer ago the late payments occurred, the less they will hurt you.

How much your credit scores are impacted by a late payment depends on multiple factors, including the overall strength of your credit history, the credit score formula being used, and how delinquent your account becomes before you bring it current. For example, an account that is 90 days past due will likely hurt your credit rating more than just one 30-day late payment.

Fixing Your Credit if You've Had Late Payments

Even if your credit score has already been impacted by late payments, you can begin working to rehabilitate your scores right away. One step to begin improving your credit scores is to order a copy of your free Experian credit report and score.

When you receive your credit score from Experian, it will come with a list of the risk factors that are most affecting your credit at that moment. Reviewing your credit history and paying attention to the risk factors provided will give insight into the changes you can make to your credit history to begin improving your scores.

There are also some general steps anyone can take to begin improving their credit right away:

• Make sure all your accounts are current. If you have any accounts on your report that are past due, you'll want to bring them current as soon as possible.
• Pay off any collections or charge-offs. If you have outstanding collections or charged-off accounts on your report, make a plan to pay them off as soon as possible. Some lenders require outstanding balances to be paid off before you can be approved for new credit. Some credit score models do not include collection accounts in the calculation once they have been paid in full. This means that paying off a collection account could improve your scores right away.
• Pay down credit card balances. Your credit utilization ratio, or total credit card balances relative to total credit limit, is the second most important factor in credit scores. The higher your credit card balances, the higher your utilization ratio. Keeping your utilization under 30% is key to having good scores. A utilization ratio under 10% is better, and paying your balances in full every month is ideal.
• Sign up for Experian Boost^®ø. If you use your bank account or a credit card to make your utility, cellphone or streaming service payments, you can get credit for those on-time payments by adding them to your credit history using Experian Boost.

Thanks for asking.
Jennifer White, Consumer Education Specialist

This question came from a recent Periscope session we hosted.