How late payments wreck your credit

Your payment history is the most important aspect of your credit score, with the greatest weight of any single factor. Learn how to manage a late payment.

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Your payment history is the most important aspect of your credit score, with the greatest weight of any single factor. So, what happens when you have a late payment and ruin your otherwise good payment history?

What Happens to Your Credit Score

Your credit score will be negatively affected by a late payment. In fact, according to Experian, "the single most important indicator of credit risk is a missed payment, so it will have the greatest and longest lasting impact" on your credit.

Your payment history affects 35% of your total credit score, so it isn't the only determining factor, but it's a big one. Typically, one late payment can drop your credit score 60-110 points. Other things can also affect your score, like how late the payment is and your history of late payments. According to Credit Sesame, as a worst-case scenario, your credit score could drop 35%. If this is your first late payment on an otherwise good credit report, then you will likely see less than a 10% drop in your credit score.

There's a 30-Day Time Limit

In most cases, a late payment on your credit cards will not show up on your credit report until it's at least 30 days past due. This means that if your payment is less than 30 days late, it may not be reported to the major credit bureaus (TransUnion, Equifax, and Experian).

According to the federal Credit Card Act of 20091 credit card companies are required to send statements 21 days before the payment is due. This means that technically, you have at least 50 days after the billing cycle closes to make the payment before it's reported to the three credit bureaus.

While this may be a relief when it comes to your credit card payments, the 30-day rule doesn't necessarily apply to car payments, mortgage payments, or other installment loans. In those cases, a late payment can show up on your credit report at any time. However, if you have a history of late payments, your lender may take further action, such as sending your account to a collection agency. The later your payment is, the worse the effect will be on your credit. (For example, 90 days late is worse than 60 days late, which is worse than 30 days late.)

Late Fees Will Add Up

Each time you are late for a payment (even by a day), you will incur a late fee. Typically, a late payment penalty fee is $25-$35. If you have more than one late payment, these fees can quickly add up. If your account is in otherwise good standing, your lender may consider reversing the late payment penalty fee. Simply call and request that the fee be reversed or forgiven. If at first you don't succeed, consider speaking with a supervisor.

Your Rewards and Promotional Offers Could Be Revoked

Only one late payment can ruin that coveted 0% balance transfer or purchase promotional offer you were approved for. A late payment can invalidate the offer, so you'd have to start paying interest on the balance. Even being one day late on your payment could result in losing points, miles and other credit card rewards that you have accumulated.

Your APR May Increase

Even if you don't have a promotional offer on your card, a late payment may result in an increase in your interest rate or a decrease in your available credit. According to the National Consumer Law Center2 you could be hit with a penalty APR as high as 30% if you are more than 60 days late on your payment.

It's a Big Red Flag

Applying for financing in the future will be more difficult if you have a late payment on your account. Future lenders will believe you are a credit risk and likely won't want to approve your application for a loan or credit card.

This late payment red flag can affect other areas of your life as well. For instance, your credit report may be pulled when you are applying for a new apartment, for a new job, or for new insurance.

How Long Will It Affect You?

The good news is that your credit will recover from a late payment. The bad news is that there is no exact timeline for how long this will take. It will all depend on any other negative issues on your credit report. According to VantageScore, it takes between one to two years on average for your credit score to fully recover from a late payment. While it may not affect your credit score for long, it will remain on your credit report for up to seven years.

How to Restore Your Credit

The first thing you'll need to do is bring the account current. Going forward, you'll need to demonstrate a good history of on-time payments. If necessary, just pay the minimum amount so you can keep up with the monthly payments. Remember that a late payment could apply to your mortgage, car payments, loans, credit cards and any other regular debt or lien payments that you make every month.

Consider setting up automatic payments so you never miss a payment again. You may also be able to receive payment reminders by email or text every month, or you can set them up yourself in your calendar (like Google Calendar or iCal Calendar). You can also speak with your lender to request they change the due date every month to something more convenient for you (such as after payday).

Your credit will recover, as long as you do the right thing going forward. Keep an eye on your progress by monitoring your credit score through your credit card bank or lender—many offer it as a service or perk for account holders. You can also get your free credit report once a year at AnnualCreditReport.com to ensure there are no late payments you weren't aware of.

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1. According to Credit Card Act of 2009 can be found under the section header "Unfair or Excessive Late Fees Reduced Substantially"
2. The "a penalty APR as high as 30% if you are more than 60 days late on your payment" can be found on pg 22
This article was written by Andrea Cannon from Kiplinger and was licensed as an article reprint from May 17, 2016. Article copyright 2016 by Kiplinger.
The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
This reprint is supplied by Fidelity Brokerage Services LLC, Member NYSE, SIPC.
The third-party provider of the reprint permission and Fidelity Investments are independent entities and not legally affiliated.
The images, graphs, tools, and videos are for illustrative purposes only.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917.
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