Managing your Money

Everything you need to know

How missed and late payments affect credit score

Do late payments affect credit score and credit rating?

In an ideal world we would never have to make a late payment, but sometimes our financial situations change and this can become necessary. In this guide, we'll talk about how late payments or missed payments can affect your ability to borrow, and to what extent they can cause harm to your credit score and credit rating.

We enlisted the help of finance experts Becky Goddard-Hill, Richard Fenton and Pauline Paquin to offer their views throughout. Becky Goddard-Hill is an author and multi-award winning blogger, who runs the money-advise site, Family Budgeting. Richard Fenton is a finance expert and media writer, and runs the UK Top 10 Business & Finance blog, Doesn't Grow On Trees. And last but certainly not least, Pauline Paquin is the writer behind Reach Financial Independence, featured on the likes of The Huffington Post, Business Insider, Forbes and Mint.

Late payments on credit report

Your credit report can show if you have made a late payment or missed payments on your loans. It depends on the lender as to when they will let the credit bureau know; it usually takes anything from 30 days up to 60 days past the date you missed the payment. This means that you usually have up until this point to make your payment and put the situation right without it making a mark on your credit report. Once it's on, however, this will stay there for up to six years.

Becky tells us, "Its impact reduces over time, but it lowers your credit score and checking companies will see it. It may or may not have an impact on whether you are lent money, but obviously the more late and missed payments there are the more impact that it will have on your credit record. However, if the late payment is due to unforeseen circumstances such as a family emergency or redundancy, a note can be made on your file to explain this."

Becky adds that on the plus side: "Its effects will fade as the new records of timely payments are reported."

Do late payments affect credit rating and credit score?

Late and missed payments will likely impact your credit rating and credit score. It's a sign that shows lenders that you may not be able to be financially responsible to pay them back, and so is reflected to show them this in their credit score or rating. And it's not just money that you borrow, "even paying your utilities or phone bill late can affect your score too", says Richard.

We wanted to know how lenders would see late payments, and to what extent this would affect your credit rating and credit score. According to Richard, "Making a late payment just once or twice over a 12-month period won't be too harmful, but repeated late payments can be very harmful as creditors see this as a warning that you may be struggling to meet your current commitments, which could lead to your credit score being reduced."

Pauline reiterates this, suggesting the extent to which you are affected depends on who the person is, and where they are in their credit journey so far. As Pauline tells us: "A credit score considers a lot of different factors. Two people will be affected differently by missing a payment. If you only have a couple of years of credit history, a late payment will have a bigger impact than if you have a good credit history."

So, what should you do if you feel you may be in danger of missing a payment? Pauline suggests that the best approach is a hands-on one: "Be pro-active and approach your lender to discuss your options." Often, your lender will be able to extend your payment period or support you with a way that works for you both.