How Late Payments Hurt Your Credit Report and Score

by Dawn Handschuh, Personal Finance Writer   

Will paying bills late hurt your credit score?

Yes, it most certainly will. Because your payment history accounts for roughly 35% of your credit score, paying bills late is the single worst thing you can to do to your credit score. According to credit-reporting bureau Experian, being late on any bill for any length of time tells lenders you're more likely to miss payments again, so it's never a good thing, especially since all late payments stay on your credit report for up to seven years.

However, some late payments are much worse than others. How do you tell the difference? To answer that question, we'll need to know more details about the circumstances surrounding the late payment — how late the bill payment was, if it's the first late payment (or one of many), and how recently it happened.

Being a little late once in a blue moon will hurt your score, but only temporarily

If your bill payment is late by 30 or 60 days on a very infrequent basis, your credit score will be damaged¹, but only temporarily, while the account is currently past due. And while the late payment will remain on your credit report for seven years, your credit score will rebound in the short term.

However, if you lose track of time on a regular basis and repeatedly make payments that are 30 or 60 days late, that's a different story. You'll be establishing a pattern in the eyes of lenders and other credit issuers, so your late-payment habits will have more lasting consequences.

Being really late is worse than being just a little late

Those who make a payment that's at least 90 days late are considered a serious credit risk by lenders.¹ This kind of lapse damages your credit score the most — and for the long term. The impact of a single 90-day late payment is equal to that of a bankruptcy, collection or repossession. That's because making even a single payment at least 90 days late tells lenders you're more likely to pay late again.

So while an isolated 30- or 60-day late payment will hurt your credit score temporarily, a 90-day late payment will continue to wreak long-term damage, even after you've paid the bill in full.

While the impact of a payment that's late by 120 days or more is no worse than a 90-day late payment, after four months' time, your lender will probably have referred your account to a collections agency. This move in itself will further cripple your credit score.

Late payments hurt responsible borrowers more

In general, making a late payment will damage good credit scores more so than bad ones. So if someone with a score in the 700s makes a late payment, it could zing their score by 100 points or more. If you already have a number of unfavorable factors on your credit reports, resulting in a poor credit score, a late payment may not make much difference.

Of course, the more recent the late payment, the greater its impact. The passage of time will lessen the effects of any late payment, although it's impossible to nail down exactly when your late payment will cease being a negative influence on your credit report.²

It's not how much you owe, it's whether you pay on time

You might guess that the amount of money involved in your late payment affects your credit score, but it doesn't really matter whether your late payment involves a $50 charge or a $5,000 bill. What counts is whether you pay on time or, if not, how late you finally make that payment.

Footnotes

¹ "The Real Impact of Late Payments," The Motley Fool, October 20, 2005
² "7 fast fixes for your credit scores," MSN Money, March 4, 2009