How a Late Payment will Affect your Credit Score

Financial institutions, utilities companies and insurance carriers use your credit score to determine the level of risk they are likely to undertake by doing business with you. A low credit score increases the likelihood that you will make late payments, or even default. It also is an indicator that you are apt to file more costly claims against your insurance. These determinations are made by actuaries, who study the risk associated with various credit score levels.

There are several different credit scoring models in use, depending on the needs of the end user; but most scoring systems are set up to determine how likely you are to have 90-day or longer delinquency in the coming 24-month period after your score is calculated.

Because of the focus on past 90-day late pays, an older 30- or even 60-day delinquency won’t have as much of a negative effect as long as it is an isolated occurrence. Even an infrequent 30 or 60 day late pay will only affect your credit score as long is it is currently being reported as past due. Being habitually 30 to 60 days late on payments will negatively affect your credit score on a long-term basis.

Even one reported 90-day late payment will adversely affect your credit score, as the scoring models predict that you are likely to be 90 days late again. In fact, a 90-day delinquency stays on your report for up to seven years, making it as damaging as a bankruptcy, collection, repossession, judgement or tax lien, as far as scoring. That one 90-day late payment brands you as a “repeat offender” in the world of credit scoring. A summary of the impact of late payments is:

30 Days Late – Only affects your credit rating while it is current, unless it is a frequent occurrence.

60 Days Late – Again, this is most damaging while current. An infrequent or isolated instance won’t have much influence.

90 Days Late – No matter whether this is current or not, this is damaging. It will affect your credit rating for up to seven years. Because the goal of the scoring method is to predict the likelihood of a 90-day late payment, the fact that you have already done so makes it more likely that you will be 90 days late again, and drastically lowers your rating.

120 + Days Late – You will experience no additional direct damage to your credit score, but at this point debts are often sold to a third-party collection agency or charged off. This will further lower your credit score.