Because your payment history is the most important factor used to determine your credit scores, late payments on your credit report can have a dramatic effect. Not only do late payments show creditors you have a tendency to fall behind on bills, but they can also signal other financial problems, including a future default.
The impact of paying bills late can be longer lasting than most people realize. In fact, late payments can stay on your credit reports for seven years, which is a long time to have negative reporting hurting your borrowing prospects.
That's why, when it comes to late payments on your credit report, an ounce of prevention is worth a pound of cure. Read on to learn how late payments can hurt your score and when they actually fall off your credit reports on their own.
How do late payments affect my credit scores?
The two most common credit scoring models — FICO and VantageScore — consider your payment history to be the most important factor when determining your credit score. In fact, VantageScore uses this factor to make up 40% of your credit score, whereas your payment history makes up 35% of your FICO score.
In other words, nothing can help or hurt your credit score like whether you pay your bills on time.
That said, it's important to understand when a payment is considered "late," and when that information is actually reported to the credit bureaus. According to the credit bureau Equifax, there are three important dates to consider here:
- Account closing date, which is the date your credit card bill is generated.
- Payment due date, which is the date you are required to make at least the minimum payment on your credit card or other debt.
- Reporting date, which is the date the credit issuer actually reports information to the credit bureaus.
This last date, the reporting date, is typically at least 30 days after the payment due date, according to Equifax. This means you may have time to catch up on late payments before they are actually reported to the credit bureaus.
Equifax also notes that some creditors won't report late payments until they're at least 60 days past due. However, you should never expect this or count on it, and you should keep up with bills as if paying even a day late might cause issues.
A few other details to note:
- A lengthy delinquency will hurt your credit score more than a shorter one that is resolved quickly (i.e. a 120-day delinquency does more damage than paying your bill 30 or 45 days late).
- Late payments may be reported to one credit bureau, two of them or all three credit bureaus — Experian, Equifax, and TransUnion. It all depends on which bureaus your creditor reports to.
- Having multiple late payments from several creditors on your credit reports will do significantly more damage than just one.
When do late payments fall off your credit reports?
According to the Consumer Financial Protection Bureau (CFPB), negative reporting can stay on your credit reports for up to seven years. This means that a late payment first reported in July of 2022 can remain on your credit reports until the end of June 2029.
The CFPB also points out that late payments can actually exist on your credit reports beyond the seven-year limit, although they no longer have the power to damage your credit score at that point.
"Even though the credit reporting companies usually won’t report this negative information after the seven year limit, they still may keep your information on file," writes the agency.
How to remove late payments from your credit reports
The CFPB says you cannot usually get accurate negative information removed from your credit reports. This means you may not be able to have negative reporting taken off your reports unless it's a mistake.
That said, your creditors could make some exceptions, and it's possible to get late payments removed sometimes. Steps you can take to make this happen include:
- Writing a goodwill letter: While there are no guarantees of success with this strategy, you can always write your creditor a letter to ask them to remove the negative reporting. Take the time to explain your situation and how you'll avoid late payments in the future, and it's possible to receive a ruling in your favor.
- Negotiating a settlement: If you're still behind on your payments and you agree to pay off your debts in full or at a reduced amount, it's possible your creditor will remove the negative information from your reports.
- Disputing late payments on your credit report: Finally, you can take formal steps to dispute information on your credit reports. Just remember that it's unlikely you'll get what you want if the negative information is correct.
How to avoid late payments
When it comes to avoiding damage to your credit caused by late payments, your best bet is never missing a payment on your credit cards and other bills in the first place. Of course, this is always easier when you have sufficient cash to cover your bills and a process that helps you stay on top of your finances in general.
Steps you can take to avoid late payments include:
- Setting up bills on auto-pay: Most credit card companies and lenders let you set up payments to be automatically drafted from your bank account. Set up auto-pay so your minimum payment is always made on your behalf, and you'll never have a late payment on your credit reports.
- Setting up reminders on your phone: You can also set up reminders of due dates on your phone, which can help you keep up with payments throughout the month.
- Paying bills according to a monthly budget: Using a monthly budget can help you remember which bills you have paid and which are yet to be paid.
- Moving the due dates to the same day each month: Also remember that many credit card issuers let you choose your own payment due date. If you have all your bills due at the same time each month, it will be easier to keep track.
On-time payments mean good credit
Late payments can be a real drag on your credit score, and the impacts can last for years and not months. With that in mind, it's always best to pay your bills early or on time, and to avoid having late payments show up on your credit reports with any of the major bureaus.
After all, damage to your credit score can harm you in many ways, and it can even cost you thousands of dollars in interest and fees when you apply for a credit card or take out a home loan or an auto loan. By paying your bills on time and maintaining a good credit score, you can avoid the financial and emotional toll of late payments.