How Late Payments Affect Your Credit Score

Posted by Kelly Luff in Credit Score on 23 May 2017 - Kelly is a Marketing Executive at checkmyfile

There are plenty of reasons why you might have missed a payment on your loan or credit card, and chances are your most immediate thoughts are about making the payment to the lender and making sure everything is square.

On top of this, you should also think about how that late payment is going to affect your credit score and what you can do to minimise the impact it has on your ability to gain credit.

How do lenders view missed payments?

Late payment markers are seen as the least serious of the negative information recorded on your credit report, but unfortunately they can have some impact on your ability to gain credit, particularly if it was recent. Most lenders expect to perhaps see a late payment or two in the average credit history – we are after all human and make mistakes or miss things from time to time.

Lenders will check your credit report when you apply for credit and if they see a late payment in the last few months, they could feel that there might be some difficulty in the customer meeting current repayments. If this was a one-off, you shouldn’t be too concerned as it will most likely be disregarded by lenders after a set period of time. But if it occurs regularly, or goes into more serious arrears, you might want to think about the message that the late payments are giving lenders; both present and potential future ones.

If they see more than one late payment on more than one account, alarm bells could start ringing. Simply telling them “but the money was sitting in my account, I just forgot” will not help – they look for patterns of reliability and signs that they can trust you to repay their money.

If there has been a pattern of recently missed payments on your credit file, our Debt Advice Centre has some helpful tips to get your finances back on track.

Can you prevent a late payment marker?

When a late payment letter is received, you are often given a short period of time to make the payment before a late payment marker is reported to the credit reference agencies. If you do get a letter, make your payment ASAP and double check with the lender that they won’t be recording a marker against the account – they should be able to confirm this for you.

Ignoring this letter and leaving the late payment until the next month means that a marker will almost certainly be recorded, and if you are looking to apply for credit soon afterwards you could find that obtaining credit becomes a tougher experience.

If there was a mistake with the lender, for instance in setting up a Direct Debit, speak to them about it as they should amend the information based on their mistake and remove any charges associated with the missed payment. Depending on the lender this may or may not prevent a late payment marker from appearing on your credit report as well. If you feel that the late payment has been sent to you in error or that you do not owe them money, you can also dispute the marker.

How long will a late payment stay on my credit score?

If a late payment has been recorded on your credit report, it will be visible to most lenders for 6 years. Each Credit Reference Agency may report this differently, meaning one or more may still be reporting the missed payment to lenders after this date has passed. One of the advantages of multi-agency credit report our is that you can see how each credit reference agency is reporting missed payments and what may be preventing you being accepted for credit.

Once the account has been closed, the record of any missed payments will be held for a further six years. So if you make some late payments or go into arrears on a credit card, those markers will remain all the time that the credit card is open, and then for six years afterwards. Some people will close that account so they have a six year cut-off date for it being reported, but this is up to the individual and whether they still need that line of credit open.

Remember, lenders don’t expect perfect credit history and will understand the odd late payment, but try not to make a habit of it. And if you do get a late payment letter, there is still time to make that payment and not get a marker, so pay it as soon as you can, even if it is only the minimum amount.

If you want to see how prospective lenders will view your credit report, you can see what they see by using our multi-agency credit report. If you’re not already signed up, you can try it free for 30 days, then £14.99 a month after, which you can cancel at any time.

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