The Effects of a Few Late Payments on Your Credit Score

By Attorney Margaret Reiter

Whether making a few late payments on bills will affect your credit scores depends on the creditor's reporting habits and your overall financial picture. If you do have a history of late payments on your credit report, take steps to improve your credit for the future. 

What is a Credit Score?

A credit score is a numerical calculation that supposedly predicts the risk that you will default on payments. Creditors use credit scores to determine if they will lend money or extend credit to you, the amount they will lend to you, and what the terms (interest rate, fees, etc.) will be. 

Different credit scoring companies use different formulas to calculate your score. The largest credit scoring company is Fair Isaac Corporation; it generates the FICO score. Reportedly, over 80% of creditors use FICO scores. 

How Do Late Payments Affect Credit Scores?

Neither Fair Isaac nor other credit scoring companies will say exactly how many points your score will drop if you make late payments. Bur Fair Isaac does shed some light on the importance of on-time payments. According to Fair Isaac, 35% of your score is based on your payment history, which includes things like late payments, bankruptcies, and delinquencies. Payment history gets the most weight of all the factors that Fair Isaac considers. The other factors (and their percentage of your score) are: Amounts owed on credit accounts (30%), new credit (10%), and types of credit (10%).

When all is said and done, a few late payments could negatively affect your score. They certainly will affect your score if you become delinquent on the account.

The Creditor Must Report the Late Payments

Of course, your late payments or delinquencies will only affect your score if the creditor reports them to the credit reporting agencies. Some creditors report late payments every month. Others won't report late payments until you are seriously behind. For example, many credit card companies automatically report payment history every month. Some won't report delinquent payments until you are 60- or 90-days late. And some creditors, like doctors and hospitals, may make a serious attempt at collection before reporting late payments to the credit reporting agencies.

Your Overall Financial Picture

If you make a few late payments and your credit history is otherwise stellar, the few late payments may not have a big impact on your score. Likewise, if your credit is terrible, a few more late payments probably won't change your score by much. If your credit is the middle, late payments may take a larger toll on your score.

Improving Your Credit Score

If you want to improve your credit score after making a few late payments, you can do the following: 

• Ask the creditor to remove the late payment report. Sometimes the creditor will remove the negative item if you pay the balance in full, close the account, or make a certain number of payments on time. It doesn’t hurt to ask.
• In the future, be sure to make all payments on time. 
• Add a statement explaining why you were late on somepayments and ask the credit reporting agency to include it in your credit report. Reasons might be illness, job loss, or the like. Be aware though, that most credit scoring companies don't look at statements in your report when calculating your score. However, if you are trying to persuade a creditor to loan you money or extend credit, a statement might persuade it that you are a good credit risk despite your late payments. 

For a comprehensive explanation of credit reports and scores, and how you can improve your credit, get Credit Repair, by Robin Leonard and attorney Margaret Reiter (Nolo).