Avoid Late Payments hurting your credit score

You were traveling, or did not have access to the internet or assumed you had paid off all your balances on full but missed one credit card payment of $1 – and got a late payment on your file. While it is bad, it’s not the end of the world and there might be a way to fix it.

Immediate Effects

Your score dropped from 780 to 630 just before you were about to about to consider financing a new car purchase or get additional funding towards your student loans. The banks and credit unions pull your credit report and see a negative remark on your file and even though you make $60,000/year or more, they quote you a 10% interest rate (up from 2% that would’ve been had you not missed that payment).

If your payment is more than 30 days late, the Bank/lender you missed a payment to will share this with all the credit reporting Bureaus and all Bank’s will be made aware of your record incase you are either an existing member or were thinking of creating a new relationship (as it is linked to your SSN).

Additionally, you will be charged a late fee and that too will incur interest if unpaid. For credit cards, the late fee may range from $25-35 or more depending on the number of times it’s happened before. Multiple accounts of late payments on file might result in closure of the account and the debt may go into collections which is even worse.

The penalty APR can be as high as or over 25 percent, which means you’ll pay significantly more in interest on your outstanding balance if it’s triggered. If you have a promotional 0 percent APR on a balance transfer credit card, paying late may also forfeit your 0 percent promotional rate and reset it to the default interest rate.

Understanding the Basics First

Payment History accounts for 35% of your FICO score and even one negative record can destroy that credit score you spent years building up.

This negative remark will stay on your record for 7 years if not removed by the issuer (more on that later) of the late payment on file.

Do note however, this does not happen immediately after your payment date. Once your credit card statement posts, you normally get a grace period before the end of which you are expected to pay off all STATEMENT balances. If your statement posted $35 on 1st June 2019, you are expected to pay $35 before the grace period ends even if by then your total balance is $120.

For Charge cards, like the American Express Gold, they have to pay all balances off in full as shown on the statement before the grace period ends (unlike in credit cards where the balances can be rolled into the next month if you have a 0% APR offer on your card).

For mortgage or loan or finance payments (on a car) you also get a date range on when the payment is owed. If you are to pay your monthly bill on the 23rd, the last day to make that payment before you default might be the 27th (just an example). It’s best to know the grace period for any and all payments you have to make.

Immediate Actions to Take

Well the first thing you want to do is pay off the balance and any charges associated with it. Immediately afterwards you should call up your bank and depending on your relationship with the bank, you might try and request a removal of the late payment from your record.

For example, a few examples off the internet showcased how a long and clean history with Discover Bank helped someone remove their Late Payment remark after missing a payment. I shall include the reddit link to one such case below for reference:

REDDIT POST: CREDIT CARD LATE PAYMENT FORGIVEN

I did also talk to a rep from Discover to understand the process and they did share with me the following:

1. The length of your relationship with them;
2. The record (no missed payments in over two years is generally a good sign);
3. No former negative remarks on your credit profile;
4. The age of your credit profile;
5. Your spending profile as well as payment profile (did you spend a lot but only made minimum payments or paid in full everytime).

All of the above will vary on a case by case basis and will determine if they -AT THEIR SOLE DISCRETION – waive your late payment fee and(or) remove the remark from your record. Since the credit bureaus are all private and all the data is private (no government control), it is in the hands of the banks to modify your report.

You may be required to submit a “Good-Will” letter which you mail to the Bank’s HQ or office and then wait for correspondence. It is always good to record everything along the way so that you are not mislead.

In a case you believe the missed payment remark on your record isn’t right, your job is to immediately report this or dispute it.

Way’s to avoid Missed Payments

Pay off ALL BALANCES in FULL everytime

I know a lot of people only make the minimum payments but for your own sake, do not make transactions you simply cannot afford. Spending above your means forces you to make those minimum payments but one day it’s all going to come back to you and if you don’t have the funds by then, you can be in serious trouble.

I personally pay off my balances everyday and don’t personally wait for the statement to post. This also helps me keep my utilization low by the time the statement actually posts but as long as you pay off every month, you’re good to go.

Set-Up or Enroll in Auto-Pay

Even though I pay off my balances everyday, I still have auto-pay setup with an account I know has more in it that the amounts I will potentially owe incase I am unable to get to manually pay off balances (traveling/no network, etc…).

I took the liberty to screenshot the setting up of Automatic Payments process on Discover’s website but you can do the same for any other Bank. Do note however the following:

• The account routing and checking numbers are entered correctly (otherwise a failed payment has its own penalty charge);
• The account being linked actually has the funds to pay the bills;
• The fund’s in the account being linked aren’t locked and don’t violate any requirements/conditions set by the account holding bank.

After you set-up auto pay, ensure it processes correctly because if it did not and you were not actively monitoring this, you could land yourself in trouble.

Don’t Miss Payments

Given that a Missed Payment remark will stay on your credit record for 7 years and will raise interest rates, cause rejections to loans or credit card applications or require apartment leases to have high deposits, be prudent and don’t miss your payments.

If you feel like you will be unable to make a payment, it’s sometimes better to contact the bank before hand and plead your case hoping for the best. Your financial success is in your hands and you alone are responsible for it.