Now that the holidays are over, it’s time to face your credit card bills. It’s important to pay all of your bills by the due date. What if you are late on a payment—will it affect your credit score? Credit Sesame is breaking down what affects your credit score and how:
Credit Score Myth
The myth that late payments cannot hurt your scores if you are quick to catch the account backup is true, but only if the late payment is an isolated incident and historical. This means the account is not currently delinquent. There are two categories of derogatory information in the world of credit scoring; major and minor.
Major vs. Minor Derogatory
Historical delinquencies over 90 days past due are considered a major derogatory, while anything less than 90 days is a minor derogatory. Major includes defaults, any record of being 90 days late or worse, repossessions, tax liens, judgments, collections, foreclosures, bankruptcy, settlements and accounts that are currently delinquent.
Delinquency vs. Major Derogatory
The longer you are in delinquency, the lower your credit score will typically reflect. For example, those who are 30 days delinquent have about a 35-50 point drop compared to those not delinquent. Those who are 60 days delinquent have about a 100 point drop. This is because scoring systems, like FICO and VantageScore, are designed to predict the likelihood that you’ll go 90 days delinquent after you apply for credit. Therefore, if you are currently delinquent, it proves you are willing to be past due on your credit obligations and thus, your score will drop.
If you receive a “30 day late” on your credit report, this means you are actually 30-59 days late on the obligation. If you are two weeks late on a payment, this will not be reflected in your credit score, though; you will likely have to pay a late fee.
Consequences of Late Payments
If you avoid going 90 days past due and catch up on your payments you will help your score bounce back (although not fully recover). Since lenders only update your credit reports once per month, your credit score won’t start to recover for 30 days. Most creditors will pull your scores every month as a part of “Account Management” or “Account Maintenance.” If they see that your score has dropped due to late payments, you could have your credit limit lowered, interest rates increased or even have your account closed.
John Ulzheimer is the Credit Expert at CreditSesame.com, and a credit blogger at SmartCredit.com, Mint.com, and the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit.