Can Late Credit Card Payments or Loan Payments Affect Your Credit Score?

Credit Score

Credit Score

Credit scores are one of the most critical factors in measuring your financial health. Lenders use them to determine how responsible you are for credit. The higher your credit score, the more likely you will be approved for new loans or new credit lines. Having a high credit score can also allow you to obtain the best interest rates when you borrow. Hence you must think twice about what you spend on your card so you won’t have trouble making your bill payments later. 

You should also be cautious about paying your credit card bills on time, as improper credit card management can lead to a poor credit score. If you would like to increase your credit score, there are several straightforward steps that you can take that will take only little effort and time.

In this blog, we will explain what late payment is, how it can impact your credit scores, and how the number of days you are late on your payments affects your credit score.

What is Late Payment?

Late payment is when a borrower submits credit money to the bank or lenders after the due date or grace period has passed. Banks and lenders set due dates by which a borrower must pay off their credit and loan balance. The borrower must pay the penalty and the credit amount after the due date.

What Are The Consequences Of Making a Late Payment?

When you pay by credit card after the due date then, your credit card company may not show up at your door, but they will surely take action behind the scenes. The effect of late credit card payments can last for many months or even years.

Here are the consequences of a late credit card payment. Knowing these consequences should be enough to make you make the extra effort to pay on time.

  • Your Creditor Will Assess a Late Fee.

A fine for late and/or missed payments will be added to your following billing statement. Depending on your credit card’s late-fee policy and whether it’s your first late payment in the last six months, late fees will be high. You will be assessed a late fee each month that your payment is late or less than the minimum amount.

  • Late Payments Have The Potential To Lead To Credit Card Default.

If you miss a payment for more than 180 days then there will be six payments late in a row. For this the card issuer will generally charge it off and write it off as a loss, and the charge off will appear on your credit record for seven years.

  • You Might Suffer a Loss in Credit Score.

Late payments might impair your capacity to receive credit in the future since your payment history accounts for 35% of your credit score. The other information in your credit report determines the amount by which your credit score declines as a result of late payment. In general, the better your credit score is, the larger the chance of losing points.

  • Your Credit Report Will Reflect The Late Payment.

If your due date of payment is more than 30 days late, you will be charged a late fee. An entry is made on your credit report, which can be kept for up to seven years. If you don’t make your next payment, the entry will be updated to 60 days, and it will continue to rise in 30-day increments until your account is charged off after 180 days.

  • Your Interest Rate Is Going To Go Up.

If your payment is 60 days late, you will be charged a late fee. Creditors may often boost your interest rate to the penalty rate, the highest interest rate on your credit card, rather than merely charging you a late fee. The higher interest rate raises your financing charges, making carrying a balance more expensive and lengthening the time it takes to pay it off.

Depending on the terms of your credit card. You may also forfeit any promotional interest rate that you were offered when you first applied for the card. If your card is past due, you might not be able to redeem your points

  • Chance of Losing Your Credit Card Rewards.

If you pay late, you may lose all of the rewards you’ve earned. If your account is past due, you may not be able to receive rewards.

Also Read : Credit Scores : What Is It,And What Makes It So Important

Effects of Late Payments According To The Number of Days Delayed 

Late penalties and increased interest rates are only two of the consequences of late credit card payments. The thing you probably want to avoid the most is a drop in your credit score. The other data in your credit report determines the influence on your credit score.

  • Credit Card Payment is a Day Late.

One day late is still late, and penalties like higher interest rates and late fines might occur even if you’re just one day late. However, just because a credit card issuer has the power to penalize you for missing a payment by one day does not imply it will. If you call customer care, you may be able to negotiate what will happen, particularly if you have never missed a payment before.

A negative mark might cause more significant damage to your credit score if you don’t have a long credit history loaded with good marks. It would be more challenging to obtain the finest credit-related products and services, which might result in high-interest expenses.

  • Late on Your Credit Card Payment By Less Than 30 Days

It has little effect on the credit score if you miss a credit card bill or a loan EMI payment by less than 30 days. So, if you’ve failed to pay a bill, make sure you pay it within 30 days to avoid a negative effect on the credit score.

  • The Card Payment Was Delayed For 30 Days.

Your credit score can be impacted if you have a 30-day delay on a frequent basis. The lender may be sympathetic if this is your first time deferring a loan EMI or credit card bill, especially if you have previously made on-time payments. As a result, a single 30-day late payment has no bearing on your credit score. However, if this happens frequently, it can lower your credit score by as much as 100 points, lowering it from exceptional to good, good to fair, and so on.

  • The Card Payment Was Delayed For 60 Days.

A 60-day delay in your credit card bill/loan EMI might hurt your credit score significantly. Because most lenders report to credit bureaus once every 30 days, it will appear on your credit record.

  • The Card Payment Was Delayed For 90 Days.

If you haven’t paid a credit card payment or loan EMI for more than 90 days, it will be listed on your credit report and classified as a non-performing asset (NPA). It’s worth noting that various lenders have different NPA standards, and some consider a 90-day late payment to be an NPA, while others believe a 120-day late payment to be an NPA.

A due payment on your credit report will likely stay on your credit report for seven years, affecting your future loan eligibility and interest rates.

  • The Card Payment Was Delayed For More Than 120 Days.

If you pay your credit card bill 120 days late, the late payment is categorized as “collection” and recorded on your credit report. This has a significant negative influence on your credit score, leading it to plummet even further.

Also Read : An All-Inclusive Guide To The Line Of Credit

Tips and Tricks to Avoid Late Credit Card Payments Impact?

The following are some tactics you may use to avoid missing your payment deadlines:

● Consider making automated payments to pay at least the minimum as soon as a statement is issued if you can do so without risking overdrafts. You can pay extra later online, but your account will never be late.

● Consider paying off your credit cards over the month. Paying down your bill once a week or so helps to safeguard your credit.

● Check your credit reports on a regular basis to ensure that no late payments have occurred. late payments aren’t being recorded incorrectly. A small typographical error might lower your score significantly. You have the right to dispute and obtain proof if you find erroneous information on your credit reports.

● Many credit card companies let you choose your payment due dates. You may wish to stagger owing dates to coincide with your pay checks or group them to make it easier to remember.

● If you’re having trouble saving enough money to cover a hefty expenditure each month, pay a portion of it each week. This can help you simplify your budget, but be sure you’re not getting charged convenience fees or additional sums every time you pay.

● You must set up SMS notifications or calendar reminders regarding bills due in a few days. Set up additional electric nudges if you require more than one.

● Despite having a bad credit score, you can even apply for a personal loan from the Buddy Loan can, it also helps you to increase your credit score.

Wrapping Up

Improving your credit score is an excellent objective to have, especially if you want to apply for a loan to make a large purchase, such as a new vehicle or home. When you start taking action to improve your score, it might take several weeks, if not months, to see a substantial difference.

However, you must not allow late payments to become a habit by putting yourself in a position of power. If you do, you risk incurring high fees as well as a debt that takes longer and costs more to repay than you anticipated. As a consequence, the sooner you start working on boosting your credit, the faster you will see results.