We’re all guilty of forgetting to pay a bill on time, or stuck in a situation where the funds just aren’t available. What are the true effects of paying a bill late, and how does it really affect our credit history?
Whether you’re 1 day late or 30 days past due, having a late payment in your credit history will have a negative impact for years to come. Here’s what you need to know about making late payments and how to recover from it.
How does one late payment affect you?
There are five different factors that determine your entire credit score. Payment history is the single most important factor, making up 35% of the entire pie. So this is a vital part of building a good financial history that you want to make a priority.
Since paying your bills on time makes up the largest effect on your credit history, it gives evidence to the fact that you’re unreliable at repaying loans on time. This ups your risk factor to any bank or financial institution who’s considering offering you a loan.
A long history of timely payments shows that you’re a reliable borrower capable of repaying debts on time. But a poor history of timely payments suggests you’re a high-risk borrower.
This can affect your bottom line in several ways:
- Causes you to be denied for certain loans or consolidation methods
- Forces you to pay high interest rates and even higher fees
- May decrease your overall credit score
How long does it take to recover from a late payment?
So what happens if you do have a late payment (or several) on your record? Well, the first step is to bring all your accounts up to paid status, so if you have any outstanding bills due pay them as quickly as possible. Showing a delinquent account on your credit report is much more costly than having a past due status.
Although the negative impact from making a late payment does decrease over time, it will remain on your credit report for seven years before dropping off. If you have more than one account where a late payment was posted, this will have an even greater affect on your credit than simply one past due account.
What can you do if your payment is late?
If you find yourself in this situation, don’t lose hope. There are still a few things you can do to turn this around for the better.
- Request the late fee be refunded. Leverage your loyal customer status and call the financial institution to request they refund the late fee you were charged. The will likely honor your inquiry and forgive the fee — especially if this is your first offense.
- Reset your interest rate. If your interest rate spiked due to the late payment, remind the company or card issuer that they are required to reset your interest rate as long as you make on-time payments over the next six months. If you hold up your end of the bargain, so will they.
- Make payments on time. Going forward do whatever you can to make all of your payments on time. This will help to slowly improve your credit history over time and establish you’re once again a trustworthy borrower again.
Having a late payment isn’t the end of the world, but it can negatively affect your credit score. Use these tips to get back on track and start building a solid financial history again.
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