Your payment history is the most important factor in your credit score. Even a single late payment can cause a significant drop in your score. Conversely, consistently making on-time payments can help your score gradually improve.
How to determine when a late payment is reported to the credit bureaus
According to the FICO scoring system a payment that is 30 days or more past the due date is considered late.
For example, if your credit card due date is September 1, 2024, but you pay on September 15, 2024, this is not a late payment according to the FICO scoring model.
The credit card company can charge you a late fee but they cannot report the payment as late to the credit bureaus.
However, if your due date is September 1, 2024, but you pay October 2, 2024, the credit card company can report the account to the credit bureaus as late because you’ve passed the 30-Day threshold.
How long late payments remain on credit reports
Both recent and older late payments will remain on your credit report for up to 7 years from the date of the original delinquency.
However, their impact on your score diminishes over time, with recent late payments having a much stronger negative effect.
Recent late payments generally carry more weight than older ones on a credit report. Credit scoring models, like those from FICO or VantageScore, place more emphasis on recent credit behavior because it is considered a better indicator of your current creditworthiness.
For example, a late payment that occurred within the last year can have a more significant impact on your credit score compared to a late payment from several years ago.
Over time, the impact of older late payments diminishes, especially if you’ve demonstrated responsible credit behavior since then.
Late payments can remain on your credit report for up to seven years, so their influence can linger even if their impact decreases over time.
How to recover credit scores after late payments
Maintaining a positive payment history and addressing any recent late payments can help mitigate their impact on your credit score.
If you’re attempting to fix your credit, correcting or deleting late payments will help improve your credit scores.
What are the best practices to avoid late payments
Here are five best practices to ensure you consistently pay your credit card bills and loans on time:
Set Up Automatic Payments: This is arguably the most effective way to avoid late payments. Many financial institutions allow you to set up automatic payments from your checking account to your credit card or loan accounts. Ensure there are sufficient funds in your checking account to cover the payments.
Calendar Reminders and Alerts: If you prefer to make manual payments, set up reminders on your calendar or phone a few days before the due date. Most credit card companies also offer email or text alerts to remind you of upcoming payments.
Budgeting and Tracking: Create a budget that accounts for all your expenses, including your credit card and loan payments. Regularly review your spending to ensure you have enough money to cover your bills.
Prioritize Payments: If you’re facing financial challenges and can’t pay all your bills in full, prioritize your credit card and loan payments. Late payments on these debts can severely impact your credit score.
Emergency Fund: Maintain an emergency fund to cover unexpected expenses or income disruptions. This will prevent you from relying on credit cards or loans to cover these costs, reducing the risk of falling behind on payments.
Remember, paying your bills on time is crucial for maintaining a good credit score and avoiding costly late fees and interest charges.
