Your payment history is the single most important factor in your credit score. Missing a payment, even by accident, can leave a negative mark on your credit report for seven years.
Late payments may not hurt your credit if you respond quickly enough, however. Knowing how your credit card company reports late payments and how the credit bureaus treat them can help you avoid the problems they cause.
How late is too late?
Credit card companies usually warn you of the deadline on your statement and as you’re making the payment online. If you don’t pay the bill on time, they may charge a fee and extra interest. However, just because your wallet took a hit, it may only be a short-term sting.
That’s because the credit bureaus don’t add a late payment to your credit report until it’s 30 days late, according to the Credit Reporting Resource Guide. What’s more, some lenders may not even report your late payment to the credit bureaus until you’re 60 or even 90 days late.
“It varies from lender to lender and loan to loan,” says Heather Battison, vice president of TransUnion. She says, “When someone opens a new credit card account or takes out a loan, they enter into a contract with the creditor or lender to repay the debt owed on time. Just as the terms and conditions of those agreements vary, so does the timeline for reporting late or missed payments to the credit bureaus.”
The later it gets, the worse it gets
If you’ve somehow found yourself in a situation where you have a 30-day late payment, you may be wondering whether the damage has already been done. Don’t let a delinquency make you complacent, though. The longer your payment is late, the more it can hurt your credit.
“One payment that is 30 or 60 days late will likely cause an initial, minor credit score impact, but won’t create a substantial long-term impact,” says Battison. But “just one 90-day late payment can have a significant impact on a person’s credit score in the short and long-term.”
Battison also notes that it can get worse if making late payments becomes a habit. What’s more, the negative mark will remain on your credit report for seven years, even if you pay the late fee and the balance.
How to avoid late payments
A late payment won’t have an impact on your credit if it’s paid off within 30 days. However, the other penalties of paying late make your due date worth remembering.
Most credit cards charge a late fee, and some even charge a penalty APR that’s much higher than your regular purchase APR on the card. To avoid these hits to your wallet, follow these tips to make sure you pay on time every time:
1. Create a budget and stick to it
The less control you have over your money at a basic level, the easier it is to miss things like due dates. “There are lots of ways to manage your bills,” says Battison. “But first and foremost, I recommend creating a budget and sticking to it.”
Keeping a monthly budget and tracking your expenses reminds you often that you have a balance you need to pay off. It will also make you more conscious of unnecessary expenses like late fees and interest.
2. Set up autopay
To avoid the hassle of remembering each month, you can simply set up an automatic payment from your checking account each month. Of course, this means that you’ll need to make sure you have enough cash in your checking account to cover the payment. Otherwise, you may be charged a fee for a returned payment.
3. Change your due date
If you find you’re having a hard time remembering your due date and you’re not sure you feel comfortable with autopay, consider calling the bank. Depending on the size of the bank, many will allow you to change your due date to a day that you want. For example, you can pick the day after pay day, or the first of the month because it’s easy to remember.
4. Set up alerts
Most banks allow you to sign up for text or email alerts. If you sign up for a payment reminder alert, you’ll get an email or text a few days before your due date to remind you. “Most people spend a considerable amount of time on their phone,” says Battison. “So, a smartphone alert is an easy way to make sure they see the reminder and remember to pay their bills on time.”
5. Pay as you go
Instead of paying once a month by the due date, you may prefer to simply pay off your card as you use it. Doing this can ensure that you’re all paid up by the due date because you’ve been making payments throughout the month.
Whether you’re working to build credit or you want to keep your excellent credit intact, understanding how late payments work is important. If you make a mistake, rectify it as soon as possible. The longer you wait, the more likely that it will damage your credit.