Your credit report is an essential piece of financial information. Generated by one of three credit organizations, your file details your payment history, the type of credit you have, and any consequences you've faced because of bad behavior.
Many people wonder how long information stays on your report. While it certainly depends on the nature of such information, as a general rule of thumb, most negative information remains in your file for approximately seven years.
Unfavorable information includes late or missed payments, credit accounts closed by default, repossessions, and bankruptcies.
Read on to understand more about how negative behaviors, specifically late payments, impact your credit score and, by extension, your credit file and the steps you can take to avoid this from affecting your personal finances.
When do late payments fall off your credit report?
What constitutes a late payment can vary from creditor to creditor, meaning that what information shows up on your credit report will differ as well.
There are a few scenarios in which such a discrepancy is applicable:
One: If you can make a payment within 30 days of the original delinquency date, your creditor won’t report the past due bills. You’ll most likely face a late penalty and interest fees.
Two: If you make a payment after 30 days, and after your creditor has already updated the three major credit bureaus, Experian, Equifax, and TransUnion, the late payment will fall off your report after seven years. If it gets to be 90 days after the original due date, it will also be seven years before the information disappears.
Three: If you don’t make any payments, your creditor will have to cover the cost. A debt collection agency will most likely take control of your credit account afterward. This also takes seven years to fall off your report.
How long do late payments stay on your credit report?
Payment delinquencies disappear from your credit report after seven years.
According to FICO and VantageScore, two of the most popular credit scoring platforms, payment history accounts for 35 percent of your credit score. This is the most important factor in calculating your score. Late payments will be factored into your score by banks and credit card issuers, should you submit new financial applications. Make sure you stay under your credit limit. Experts recommend not spending more than 30 percent of your available balance.
How does a late payment affect your credit?
Late payments negatively affect your credit, but how severely depends on your credit score and the overall state of your credit profile.
If you have a “very good” or “excellent” score, a single late payment will cause a more severe drop in your score, as opposed to if your score is “good” or “fair.” If you repeatedly miss making on-time payments, this will influence your score more seriously.
Late credit card payments on multiple accounts, such as credit cards, mortgages, student loans, or auto payments, will also cause your score to fall more quickly.
Fortunately, however, the severity of late payments gradually decreases as your credit history grows.
What can you do to reduce the impact of a late payment?
Making a conscious effort to pay your bills on time is a habit that will positively impact your score and help you in the future, especially if you want to apply for other lines of credit.
Described below are steps you can take to help reduce the impact of late monthly payments.
One: Write a goodwill letter. With a professional note, you can address the reasons for your late payments, take responsibility for them, and appeal to your creditor’s goodwill. There’s no guarantee that this will work or will be enough to waive your late payment (or at least reduce any subsequent penalties), but it is always worth a try. If your past payment history is excellent, there’s a higher chance this will be effective. A paper trail is always a good idea.
Two: Negotiate. Don’t be afraid to negotiate with your banks and lenders. There’s a chance you’ll be able to come to a compromise through partial payments. Always be sure to get your renewed payment agreement in writing in case any other issues arise.
Three: Dispute errors on your credit report. Always make sure you regularly review your file. You’re entitled to a free credit report from any of the three bureaus once a year. You can also obtain one from AnnualCreditReport.com. If you see anything amiss, like your creditor accidentally reporting a payment as late even though it was on time, be sure to file a dispute. An investigation will happen to either confirm or deny your claim. Your score will be adjusted accordingly.
How to avoid late payments
Set up autopay
Automatic payments are one of the best ways to avoid missing due dates and any subsequent late fees. Once the billing cycle begins, the amount of money that you owe will be transferred directly from your bank account without any action required on your part. You can choose to pay the minimum amount each month, or you can pay more.
Remember to keep sufficient funds in your account for your automatic payments. Otherwise, you may face overdrawn fees.
Set payment reminders
Similar to tip number one, enabling payment reminders can also alleviate the stress of missing a due date. Notifications can be in the form of physical mail, emails, alerts from your mobile banking app, or even text messages from your credit card company. You can usually get notifications for purchases, too, to inform you when a company authorizes payment for an expense like your hydro bill.
Apply for a balance transfer card or personal loan
A balance transfer card can help you amalgamate all of your debt — not just credit card debt — onto a single credit card. You’ll only have to remember to make a single lump payment each month. But be aware that balance transfer cards do come with high interest rates.
A personal loan may be better suited to your circumstances, especially if you require a larger loan amount or if you need more time to pay back your other loans. Personal loans also come with more affordable interest rates compared to those of balance transfer cards.
Despite their perks and convenience, credit cards are a big responsibility. These days, they’re practically a necessity, thanks to the ever-growing digitization of our world. Sending in payments in a timely fashion is up to you as the cardholder, but equipping yourself with tools to alleviate this pressure is just as important.
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