How Late Payments Affect Your Credit Score

When dealing with credit, one of the most important things to avoid is late payments. A late payment will affect your credit score dramatically because the FICO score is determined mostly by your payment record. About 35% of the total FICO score is calculated using the percentage of late payments a person has. While a late payment will lower the score to make it more difficult for a person to obtain more credit in the long run, the length of the late payment plays a role in the way it impacts the credit score.

What Late Payments Do

For instance, a 30 day or 60 day late payment will impact the credit score more in the month of the late payment and as time passes, that late payment will impact the overall FICO score less and less. The 90 day late payments however, will impact the credit score more negatively over time, especially for the next 24 months. Two years after a 90 day late payment has been made, it doesn't affect the credit score so tremendously anymore. If a person has a 120 day late payment, this will impact the credit score more than a 90 day one, and for longer. The more 90 and 120 day late payments there are on the credit report, the lower the score will be. Generally speaking, if there are more than one 90 day late or 120 day late payment on the report within the last 24 to 36 months, creditors will deny all applications. 

What This Means

If a payment is a month late once or twice, this will not have a tremendously negative effect on the credit score. If there are several payments missed for a month or more, this will be worse on the credit score. If just one payment is three or four months late, this can be as detrimental to the credit score as a charge off or a collection. In fact, when a person is 90 to 120 days late on a credit card account, the account will likely be charged off. If the account is not charged off, there will be a late fee, along with an interest rate increase, making the cost of credit higher in the long run. If a person is this late on a mortgage, foreclosure proceedings will begin, which will adversely affect the credit report and score for quite some time.

How to Avoid Late Payments

Keep a tight budget and be fully aware of your balances, due dates and minimum payment amounts every month. Rather than waiting on the mail and risking the payment not making it to the processing center on time, consider using an online account with the creditors to process the payment online. If you do not have a credit or debit card, consider using a prepaid option. For those who have bank accounts, set up an automatic bank draft to take the hassle out of having to remember to pay the creditors.

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