Will a late payment hurt my credit? It depends

Key Takeaways:

  • Paying bills late often hurts your prospects for mortgages, car loans, apartment applications, and more.
  • First-time late-payers can often get a late payment fee waived.
  • Paying loan and credit card bills on time is proven to raise your credit.
  • Paying within 30 days of the due date can help you avoid damaging your credit score.

It’s one of the first rules of managing your finances: Always pay your bills on time. Many folks do a pretty good job most of the time, but what happens when we don’t? After all, it’s not that uncommon – 7 million Americans are 90 days or more behind on their auto loan payments, per a Federal Reserve Bank of New York report in February 2019.

Okay, so what happens if you’re 60 days late? Or 90? What’s the difference between making a late payment once a year and being late every two or three months?

Here’s a helpful primer on the consequences of paying your bills late – and how to avoid the problem in the first place.

When paying late is really too late

One of the worst ramifications of not paying your bills on time – and therefore, one of the main goals to avoid – is having it negatively impact your credit score. If your score goes down, future attempts to get credit or loans, including mortgages and car loans, and even apartment rentals, become much harder. You’ll likely end up with much fewer lender options and a higher interest rate for borrowing. 

Not all bills are created equal. As a general rule, the history of many bills, like rent and utility payments (electricity, phone), are not reported to credit bureaus. In other words, your score likely doesn’t get any help from paying on time, but it’s also likely you won’t get dinged if you’re late.

But that doesn’t mean you can stay delinquent forever! The longer you don’t pay one of these bills – often after a second and third notice – your landlord or utility company will likely turn over your overdue account for collections. Never mind the fact that collections calls are annoying and depressing, your credit score will get dinged once you get turned over to collections. Having an account in collection can hurt your credit standing even after you pay off your debt in full.

With loans and credit card bills, your payment history is regularly reported to the major credit bureaus, and creditors can report payments that are 30, 60, or 90 days late.

Plus, credit card companies will still often charge you a late fee of about $35 if your payment isn’t on time. And you can rack up additional late fees if you miss more due dates. Ouch!

If your late payments multiply, you also risk seeing your interest rate rise. For example, a penalty rate on a credit card can climb as high as 30% APR, which will immediately increase your monthly finance charge. If you miss a payment on a zero-percent teaser rate card, chances are you’ll forfeit that promotional rate and get moved up to the default interest rate.

Once the major credit bureaus are notified (after 30 days), a late payment can stay on your credit report for seven years. Payment history accounts for more than one-third of your credit score, meaning a series of late payments could turn a good credit score into a bad one very quickly.

Benefits of paying on time

MoneyLion makes it easy for you to pay back loans and credit with automated, manageable payments and reasonable APRs. Our Credit Builder Loan is specifically designed to help you build your credit with manageable regular payments that we report to all three credit bureaus.

Plus, if you are going to be late on a payment, we can work with you to make a plan to get back on track. Even still, multiple missed payments will eventually be reported to the credit bureaus and can hurt your credit score.

Finally, if you have too many missed payments, you may lose access to your Instacash cash advances or other membership perks until you catch up. All the more incentive to pay on time and to reach out to us when you need help.

What to do when you’re late on a payment

The best way to catch up a missed payment with MoneyLion is to go to the Loans tab of the MoneyLion app and select your loan. It’s easy, safe and secure – and you can use any payment method in your MoneyLion app’s Wallet. You may also use our Pay Now portal or contact us.

  • Pay the bill as soon as you can. All things being equal, paying 35 days late is better than paying 95 days late – or having an account transferred to a collection agency.
  • If this is your first late payment and you’re otherwise in good standing with your creditor, think about requesting that the late fee be waived. Banks will often forgive your first offense.
  • If you’re now stuck with a new, higher interest rate, get back to on-time payment as soon as possible. Credit card companies are generally required to reset your interest rate to the pre-penalty rate after six months of paying on time.
  • Finally, keep any other debt accounts up to date. Your goal is to maintain a credit profile that shows this was a one-off mistake, not a regular occurrence (and potential risk) for your current and potential creditors.

An ounce of prevention

Of course, the best way to fight late payments is to avoid having to make them. Setting up a solid budget can go a long way toward making sure money for your monthly expenses are there when you need it.

You can also use today’s technology to help you pay on time. Most banks and creditors enable you to set up text alerts to inform you about bills about to be due. Or put things on autopilot by setting up automatic payment deductions from your checking or savings account. This works particularly well for bills that are the same amount every month, like a car loan or mortgage payment.

All of the work to maintain and build a good credit score shouldn’t be put at risk by paying your bills late. If it does happen, stay disciplined and fix any collateral damage from a late payment as soon as possible.