How many points does your credit score drop if you’re late on a payment?
Your credit score and credit report allow lenders, such as banks and credit unions, to determine how risky it would be to lend you money or credit. A credit history of timely payments tells lenders that you are likely to be a safe bet. On the other hand, a history of past due payments suggests that you are not a good candidate for receiving a loan.
One of the most common questions we get about managing one’s credit score is whether missing one payment for a debt can lower a credit score. Your payment history can make up almost 35 percent of your overall score, making it one of the most important factors used to determine your overall score. Unfortunately, even one missed payment for a credit account, like a credit card, mortgage, or another type of loan, could cause a person’s score to drop significantly.
When hardships and struggles get in the way, a late payment is bound to happen. So how many points will your credit score drop if you happen to miss one payment?
Well, that number depends on a few different factors. We will try to give you some insight into the credit-scoring system but it is difficult because credit scores are calculated using a long-secret formula created by FICO. They don’t like to divulge how they calculate their scores.
Some light has been shed on the mysteries of just how our credit scores are affected by different things. FICO has disclosed how certain things like late payments, debt settlement (not to be confused with debt management), a foreclosure, or a bankruptcy could affect your credit score.
How many points will it drop?
Let’s take a look at how FICO might calculate the hit your credit score would take for a 30-day late payment on something important like your mortgage. We will use three credit scores of 670, 720, and 780 as our examples. Keep in mind that a 670 score is considered average while a 780 score is considered to be excellent.
Examples are as follows:
- People with an average credit score of 670 could see their score drop down to around 520 or 530 after a 30-day late payment. That could be a possible drop of 150 points.
- Consumers with a score of 720 could see that score drop down to 580 or 590 after a 30-day late payment. That’s a possible drop of 140 points.
- People with a credit score of 780 could see their score drop as low as 620 after a 30-day late payment. That’s a possible drop of 160 points!
You might be surprised when you find out that the person with the higher credit score (780) is likely to take a much bigger hit on their score for everything from a single late payment to a bankruptcy. However, no two consumers are alike so the point deductions will vary, even between two people who have the same exact score of 780. The FICO point system takes into account any indication that you’re in over your head. Things like late payments and maxed out credit card limits are considered warning flags, meaning that you might be headed for serious financial trouble.
If you have a low credit score, it’s important to work hard to try and raise it. Credit scores have become increasingly important if you need or want to borrow money, obtain a car loan, or purchase a home. These are just a few examples of what your credit score can be used for. Credit scores can also affect your ability to do simple things like buying a new cell phone or how much you’ll pay for auto or renters insurance. Applying for a new job could also be hampered because some potential employers may ask to pull your credit report.
One common myth that needs to be extinguished is that employers can see your credit score. This is simply not true. The credit report the company reviews does not have your credit score on it. However, even if they can’t see your score they will be able to see any missed payments, late payments, bankruptcies, etc. and that will give them a good idea of how responsible you are with your finances. There are a few employers who might look at your credit report before deciding whether or not to offer you the job.
Factors that affect the impact of a past due amount:
• How long ago did the late payment occur?
• How late is the payment (30 days, 60 days, or 90 plus days)?
• How many other late payments are there?
Each credit reporting agency uses its own specific model for evaluating your credit history to determine a score. However, how past due payments may affect your credit score generally depends on how late the payment is, how recent the debt is, and your payment history for the individual loan and more generally. For example, a payment that is 60 days late has a greater negative impact on your score than a debt that is 30 days late. Similarly, a history of missed payments on a debt affects your score more severely than a single past due payment.
How recent is the missed payment?
A recent past due payment is more damaging than a missed or late payment from a year or more ago. A recently past due payment can cause a drop of 90-150 points on a FICO score of 780 or higher. On the other hand, a person with a 90 day late payment on a credit account from a year ago could see their credit score drop only 60-80 points following a new past due payment.
How late is the debt?
Most lenders do not report a past due payment until your account is 30 days or more past due. Fees and interest charges may still apply, but you do have a kind of grace period before the information gets sent to a credit reporting bureau.
It’s important to keep in mind that past due payments remain on your credit report for up to seven years. If you missed a payment recently, meaning within the last one or two years, the effect on your score will be greater. It will continue to affect your score to a lesser and lesser degree as time goes on.
The most damaging missed payment is one that has been due for 90 days or more. From a general scoring perspective, an individual 90 day past due payment is almost as damaging to your score as filing bankruptcy.
Because the scoring model is set up to determine whether you will miss or be late on a payment within a given 90 day period, a payment that is excessively late will damage your score significantly for the entirety of the seven-year reporting period. The impact will not dissipate in any meaningful way over time.
How many other past due amounts are there?
Having habitually past due payments can cause long-term damage to your score and credit history. Being labeled a “repeat offender” by creditors makes you a higher risk and less likely to obtain competitive interest rates on loans let alone a loan in the first place.
The bottom line is that one slip up and your credit score may take a big dive, especially if you have otherwise stellar credit. Try to keep your payments on time, even if you can only make the minimum payment. If you are unable to make your minimum payments on time, if you are struggling with debt, or possibly facing a foreclosure, get professional help immediately. You can contact the certified credit counselors at Advantage CCS for reliable and confidential help when exploring your debt relief options.