Sometimes we find it difficult to repay loans on time due to various unforeseen circumstances. Sadly, these late payments have detrimental effects on your credit score. Your payment history takes 35% of your total credit score, which means a late fee would significantly affect your credit. If your payment were 30 days late, you would see a significant drop in 30 to 100 points. Overall, paying late is the most significant factor that could adversely affect your credit score. On the other hand, on-time payments and a generally good payment history boost your credit score.
In this article, we will be considering the effects of late payments on your credit score.
How Does Late Payments Affect Your Credit Score?
Your credit score generally reflects your integrity and trustworthiness to get a loan. A low credit score dampens your chances of securing a loan for your needs. Every lender or borrowing agency has stipulated ways of calculating your score to determine your reliability. They use information from your credit reports which contain your payment history, information detail and other information required on their loan application form.
Anytime you collect a loan from any company or lending firm, you are expected to repay instalments every month. This agreement becomes valid as soon as you are granted the loan. However, failing to reimburse your loan within the space of 30 days may impact your credit score. This also affects your relationship with lenders, reducing the possibility of getting another loan. Many companies are keen on payment history and consider late payments a sign of financial struggles. This will indicate that you cannot adequately repay your loans when due and may affect future dealings.
If you have had overdue payments in your credit report, you can confirm your credit score from credit bureau agencies. Everyone is entitled to a free credit report once every year. This allows you to access your credit score and know how much impact your outstanding payment had on it.
The credit determines the amount of impact your overdue payment has on your credit score. In some cases, paying late may lead to legal charges and proceedings depending on the size of your loan.
Generally, the severity of your late payments on your credit score is accessed through three main criteria. Your level of impact is deduced by:
- Time of Late Payments
- Amount owed
- Frequency of the late payments
How do I Spot a Late Payment on My Credit Report?
Credit collection agencies give you the chance to review your credit report. According to statistics, every 1 out of 5 credit reports contain an erroneous information. So it is possible that you find a mistake in your payment history.
This allows you to spot any error or mistake in your credit report. If you notice any incorrect information in your credit report, such as a false payment record, you can dispute this with the bureau.
When is a Credit Payment Overdue?
Loan companies work with federal regulations that state that payments are not considered “late” until the past 30 days. This means that you have at most 29 days to settle your debt before it is deemed late. So you have the opportunity to repay your loans even after your payment date expires. Remember, your payment history makes up 35% of your credit score. Therefore, exceeding the 30-day limit can severely affect it.
Late payments are often listed on how long they are overdue on credit reports. Creditors can also file into collection agencies about a late payment. This negative item will appear on your credit report within a month. Also, if you manage to pay your debt before a creditor’s complaint reaches the collection agencies, you will still face the music and receive a penalty.
How Can I Erase Late Payments From my Credit Report?
Different factors can contribute to you incurring a late payment on your credit report. It is possible to forget and miss your repayment deadline or find it challenging to reimburse your creditors.
If your account has a late payment credit report, you can write a goodwill letter requesting the creditor to write off the debt. Remember, having a delinquent account negatively impacts your credit score and lowers your chances of securing another loan.
Luckily, poor payment history isn’t the end of the world. You can eliminate this negative item from your credit report using debt settlement. Debt settlement is one of the most effective and cheapest alternatives to improve your credit score. This method helps to erase items like payment history affecting your credit score. Also, if you think there is a false record of late payment on your credit report, you can file a dispute letter to collections agencies. You will get a response within 30-45 days upon filing the complaint.
How To Avoid Delayed Payments?
Making payments to beat the deadline may not be an easy task. However, here are some tips to help you pay your debt on time and maintain an excellent credit score.
● Apply Only for Affordable Credit Loans
One important tip to follow when looking to secure funding is to apply for loans you can afford to repay. Also, consider the interest rate of the loans and how comfortably you’d be able to reimburse it.
Private creditors always have higher interest rates compared to other lenders.
● Set Reminders
It is possible to forget the deadline of your debt payments. Setting a reminder will help you keep track of the loan records and when they are due.
● Pay Ahead of the Billing Date
If you have the finances to reimburse your debt before the next billing date, you can pay ahead of time. This helps you worry less about late payments and makes for good payment history.
● Automatically Set-up your account
.You can choose to automate your payments at a stipulated time. Therefore, as soon as you have a certain amount for your loan, dedicate an account to settle these loans. You can decide to access an automatic withdrawal or debit from your account to avoid falling short on your payment.
● Arrange Debts on your Pay Day
One of the best ways to curb poor late payment history is to set your loan billings to fall when you receive your paycheck or a stable income.
● Load Your Credit Cards
You can choose to make down payments on your credit cards to protect your credit score and avoid a decline. This method will also help you manage your credit limit, thereby maintaining good credit utilization.
Take up Insurance
Suppose you are in a precarious situation with few ways of acquiring means to repay your debt. You can take the option of insurance payment.
Requesting for Payment Protection Insurance (PPI) is one of the ways you can pay back your debt. For instance, say you were retrenched at your place of work, it will be difficult to repay your debt. You can take up Payment insurance to reimburse your debts.
Conclusion
Credit loans help provide funds for your projects or needs. However, your payment history plays a significant role in determining your credit score, which means you can’t afford to have your repayment overdue. With useful options like debt settlement, you can eliminate traces of late payments in your report.
