Article by Kelly Luff - 11th August 2020

How Late Payments Affect Your Credit Score

When taking out an account with a company – like a credit card, loan, or even mobile phone contract – you will usually agree to make scheduled monthly repayments. Ensuring that these payments are made on time and in full is important for your Credit Score as any late payments will be recorded against you, each with the potential to harm your creditworthiness.

In general, late payments will often reduce your Credit Score, potentially undoing months of hard work. But what’s far more important is the influence a late payment can have on your Credit Report itself.

Once a payment is considered late, the relevant organisation can mark your Credit Report with a late payment marker – these negative markers will be visible to other companies performing a credit check on you and they can have the potential to make getting accepted for further credit even more tricky.

There are plenty of reasons people miss a payment on a loan or credit card but, more often than not, they want to ensure any overdue payments are back on track as quickly as possible. If you find yourself behind on a payment, you’ll also want to know exactly what the late payment means and what you can do about it.

How do lenders view missed payments?

It’s worth first highlighting that all lenders, mobile phone providers, and utility suppliers (to name just a few different organisations that will check your Credit Report) are unique companies with their own criteria that they need to meet when accepting or declining applications. Because of this, the perceived weight of a late payment will differ from company to company. Some will always be more stringent than others while some lenders will be more accommodating towards late payments.

Single late payments are often viewed as a minor negative entry, meaning that there are definitely more serious negative markers out there. Just because late payments are relatively minor though, doesn’t mean you can just ignore them, particularly if the late payment was recent.

A late payment marker on your Credit Report is essentially a red flag that shows other prospective lenders that you’ve not made an agreed, scheduled repayment. While the delay of one payment isn’t going to bankrupt your lender (hopefully), late payments do worry lenders for another reason – and that’s how reliable you’ll be later on down the line.

Late payments simply demonstrate a level of ‘perceived risk’, something many lenders try to avoid. Creditors are in the business of mitigating as much risk as possible so they can build a base of reliable borrowers that they can know with confidence will repay consistently. A late payment is one reason why a prospective lender may have doubts about your reliability when it comes to repaying.

By ensuring that all of your payments are made on time, you’ll build a long history of repayment behaviour that presents you as a reliable, consistent borrower. In other words, exactly what a prospective lender wants.

A single late payment does not mean that you will definitely be declined with every company you apply with. If you miss a payment just once, and the rest of your Credit Report paints a picture of you as a reliable borrower, lenders will still be able to see a host of information working in your favour.

If late payments occur regularly, start to become arrears (consecutive missed payments), or even defaults, the adverse influence will become much more severe on your Credit Score and ability to obtain credit.

Multiple late payment markers inherently carry more perceived risk than a single, older late payment marker. For this reason, maintaining your accounts and ensuring payments are done by direct debit is vital for a healthy Credit Report and Score. You can check your Credit Report and Score with checkmyfile.

Can you prevent a late payment marker from damaging your Credit Score?

If a scheduled payment is considered late, often creditors will send notification to the customer advising them of the overdue amount. Some even grant a short period of time in which payment can be made before a late payment is recorded with the Credit Reference Agencies. If you do receive a notification of a grace period, making payment can ensure that your Credit Report stays clean.

If you’re unsure whether your creditors provide a grace period for late payments, you can always contact them directly to ask what their policy is.

Receiving a late payment notification and choosing not to pay will, at best, place a late payment marker on your Credit Report. At worst, it’ll mean arrears will be added if you continue not to pay for the next few months. Being accepted for credit and increasing your Credit Score over time with late payments and arrears present can potentially be much more difficult.

What if an incorrect late payment marker is affecting my Credit Score?

If a late payment has been incorrectly recorded on your Credit Report, you can dispute the entry with the lender that lodged it, requesting that the inaccuracy is put right.

Creditors that share your repayment history with the Credit Reference Agencies are required by law to ensure that the information they report is correct and complete. This means that if a lender incorrectly reports that you’ve missed a payment, when you know for certain that the payment was made without issue, it’s best to raise the dispute with your lender directly.

The lender will then investigate your complaint and, if it finds it’s made an error, it is legally required to amend your Credit Report accordingly. Having an inaccurate late payment marker taken off can improve your creditworthiness and Credit Score, especially if it’s the only negative entry on an otherwise clean Credit Report.

Errors are thankfully rare, but they can happen. Whether it’s your lender making a mistake when setting up a Direct Debt or simply that the lender shared the wrong account status with the Credit Reference Agencies, it’s better to be safe than sorry. The only way to know for certain that your Credit Report accurately reflects your financial status is to check your Credit Report for yourself.

How long will a late payment damage my Credit Score?

While an account is open, the last six years’ worth of repayment history can be recorded. When the account is closed, the repayment history will be frozen in that state for six years and then removed entirely. Generally, this means late payments can affect your Credit Score for six years. Some lenders may only pay attention to late payments that are one or two years old, while other lenders will look at the full six-year history – this will depend on the lenders’ own criteria and appetite for risk.

Your Credit Report contains a wealth of important information, especially if you’re looking for the dates when certain accounts will be removed and stop influencing your Credit Score. Your Credit Report will show which accounts are open and closed, with included removal dates for those that aren’t in use any longer.

It's worth noting that most lenders (aside from the most exclusive) do not expect perfect credit histories from all their applicants. In practice, finding an odd late payment will be routine during their credit checks and there are far worse markers plaguing people’s Credit Reports, like defaults and CCJs. That said, monitoring your Credit Report is the best way to keep on top of any new additions that can influence your Credit Score and ability to obtain credit.

To sum up

  • Late payments typically remain on your Credit Report for six years from the account closure date. The entire credit account will then be removed, including all repayment history.
  • Late payments can damage your Credit Score, but this impact is heightened the more you have recorded. A single late payment on an otherwise clean Credit Report will generally have a minor influence on your Credit Score.
  • Exactly how negatively a prospective lender views a late payment will differ from lender to lender. They all have unique criteria. Some are more stringent and see all late payments serious markers that need consideration, while other lenders can be more liberal with lending, therefore happy to overlook a single late payment.

How do I check my Credit Report and Score?

The only way to see what’s influencing your Credit Score, both good and bad, is to check your Credit Report. There are four Credit Reference Agencies in the UK – Equifax, Experian, TransUnion, and Crediva – that hold different Credit Reports for you, so checking with all four is advisable, because that way you’ll know you’ve seen everything you need.

Thankfully checkmyfile makes this quick and easy. Our Multi Agency Credit Report is the most detailed in the UK, giving you access to your complete information from all four Credit Reference Agencies in one easy-to-use format.

If you haven’t already, you can try checkmyfile free for 30 days, then just £14.99 per month, which you can easily cancel online at any time or by freephone or email.

Updated by Sam Griffin on 11 August 2020

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