Michelle Summerfield • Jan 15, 2020
How many times have you missed a payment? One, two, or maybe three? Come on, let’s be real with each other. Missing payments is unfortunately a bigger deal than you might think.
If you’ve missed a payment and are wondering how it’s affecting your score, we’re answering a the most essential questions about missed payments.
Payment history is one of the most important factors influencing your credit score. It makes up a whopping 35% of your score.
Lenders use your payment history to understand your risk as a borrower. Having a history of on-time payments shows lenders that you’re more likely to pay your bills on time, while a history of late payments raises red flags to creditors and suggests that you’re less likely to repay your debt on time.
If you have a payment that is more than 30 days late, creditors may report it to the credit reporting agencies. In Canada, there are two credit bureaus - Equifax and Transunion. Once the late payment is reported, it may show up on your report and could hurt your credit score. Late payments are listed on your credit report based on how many days late they are:
How much a late payment affects your credit score depends on several factors, such as how severe it is, how recent it is and how frequently you’ve paid late.
It’s hard to pinpoint exactly how many points your score will drop for a missed payment. Each credit reporting agency has its own model for evaluating your credit information and assigning you a score. This means your scores will vary between the agencies.
As an example, if your credit score is 780 and you make your first-ever late payment (30 days late), your score can drop 90-110 points. But if your credit score is 680 and you’ve made two late payments (90-day delinquency on a credit card account from two years ago and 30-day delinquency on an auto loan from a year ago), your score may drop 60-80 points with another 30-day late payment.
As you can see, the higher your credit score, the more significant an impact one late payment has on your credit score.
If you miss even just one payment on one of your credit accounts, the late payment could remain on your credit report for up to seven years. If paying late becomes a habit, your account could be charged-off or sent to collections, which could further harm your credit score.
The short answer? In general, late payments won’t show up on your credit report for at least 30 days after the date you miss the payment.
But bear in mind that you may still incur late fees or an increase in interest rate depending on the lender.
If you’re only a few days or weeks late on your payment, and you make a full payment before the 30 days is up, lenders and creditors may not report it as a late payment. But remember: partial payments don’t count! Unless you pay in full, you’ll still be marked as paying late.
A charge-off means a lender or creditor has written off your account as a loss, and the account is closed, meaning you’ll no longer be able to use it.
Once a charge-off occurs, your debt may be transferred to an internal or third-party collection agency, and you’re still legally obligated to pay your debt back.
Charge-offs usually happen when you’re more than 120 to 180 days late, or you miss a payment on the account. Once the lender reports it to the credit reporting agencies, it will show up as a charge-off status along with the late or missed payments. Similar to late payments, a charged-off account will stay on your credit report for up to 6-years from the date you first missed or made a late payment.
Sadly, if you’ve done the crime, you have to do the time. Missed payments affect your score immediately. So one missed payment will affect your score as soon as it's reported. It’s challenging to have them removed unless they are actually an error by your lender, creditor, or the credit reporting agency.
If there is an inaccurate late payment, charge off or other judgements, get your report, identify the error, and request the credit reporting agency remove it immediately.
If the information on your report is accurate, it’s going to be a challenge to get a late payment removed. Depending on the creditor, it may be possible to negotiate removing negative late payment information in exchange for payment in full or partial payment of your debt. It may require writing a goodwill letter explaining your situation or negotiating a payment plan.
If you know you’re down to the wire on a payment, call your credit card company. On some occasions, if you advise them before the payment is due that it might be late, they can make a note on your file. And if you have it, providing the payment confirmation number from your online banking may help you too.
If you’ve had a missed payment or two, it’s essential to focus on practicing better credit habits going forward to promote a positive credit score:
Borrowell is launching Borrowell Boost - Canada's first bill-tracker and predictive advance tool to help you stay on top of their finances. Boost securely links to your existing bank account, allowing you to track your bills and it will notify you of upcoming due dates. Predictive technology then determines the likelihood of insufficient funds and offers an interest-free $100 advance - or ‘boost’ - to prevent non-sufficient funds (NSF) fees. Boost is set to launch in early 2020 on a subscription basis. Download the Borrowell app to take control of your finances today!
If you’re struggling to keep up with payments, don’t be afraid to reach out to creditors. At the first sign of trouble or an emergency that’s entered your life, contact creditors to find out if they offer deferments, or hardship payment plans so you can avoid negative hits to your credit report.
Do you know your credit score? Download the Borrowell app and check your credit score in less than 3 minutes - for free! This won't affect your credit score.
Borrowell® is a registered trademark of Borrowell Inc. All Rights Reserved. The Equifax credit score is based on Equifax’s proprietary model and may not be the same score used by third parties to determine your credit profile. The score provided to you for educational use is the Equifax Risk Score.
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