Most of us have known at some point the creeping realisation dawning on us that we have forgotten to pay our credit card bill on time. Or perhaps seen the ‘red bill of doom’ lying on the doormat when we come back from holiday, to tell us that the gas bill is overdue. Some may find that their regular mortgage payment was rejected due to lack of funds.
But what are the truth and myths about missed or late payments? And just how do they affect your credit rating?
Difference between late and missed payments?
A missed payment is when it is not made at all (so for example missing a mortgage payment completely). A late payment is when you a miss a typical payment date for example 5th of the month to pay your credit card bill. A late payment is typically reported to credit reference agencies when they are 30 days overdue.
How long do Missed Payments stay on your Credit Report?
The first thing to note is that missed payments are recorded on your credit report for at least six years. Also, Court Judgments for non-payment of debts, IVAs and Bankruptcies stay on your credit report for at least six years and also can be seen by lenders.
Why is that so? It’s because lenders want to check your credit report to judge for themselves whether or not they think you are likely to keep up payments on any credit they give you.
If they see late or missed payments on credit agreements with other lenders, they may worry that you might miss payments to them too. They want to be sure that you aren’t taking on more credit than you can comfortably manage.
Do late payments impact your Credit Score?
Yes both a late payment (over 30 days as a guide) and missed payment negatively impact your credit score.
Even if late payments can affect your credit score, it needn’t stop you from getting credit. You may still be eligible for credit, but it might cost you more to do so as the most competitive deals may now be out of reach.
A single late payment won’t do you any good – but it needn’t be the difference between getting a deal or not , multiple late payments will have a more serious impact as it shows lenders you might be financially stressed and a higher risk of not paying back credit.
Credit scores weigh up lots of different pieces of information and if everything else on your report and application form is favourable it may not be an issue. It is best to make sure that you don’t miss any further payments from then on. It’s fair to say that most lenders focus on your most recent payment history. A solitary missed payment from over a year ago is probably unlikely to worry them very much.
How to avoid missed or late payments
It is basic but set-up automatic payments (standing orders or direct debits), always make a minimum payment on credit cards. If you know you’re going to missed a payment speak to the lender promptly they may offer some support.
