Late Payments and Your Credit: Tips to Minimize the Damage

Laura explains what happens when you make a late payment, how your credit is affected, and gives tips to minimize the potential damage. Plus, she answers a question from a long-time Money Girl Podcast listener who’s wondering what to do about an account that accidentally became delinquent.

Laura Adams, MBA
8-minute read
Episode #482


What Does Having an Account in Collections Mean for Your Credit?

If your payment is more than 180 days past due, your creditor may sell your debt to a collector. Then the collection company will attempt to get the overdue balance and fees from you.

Having a debt in collections is much more serious than having a 30- or 60-day late notice on your credit report and causes a bigger dip in your scores. Just like with a late payment, an account in collections stays on your report for seven years from the date you first became delinquent, even after you pay it off.

While you can’t make a valid, bad debt disappear from your record, paying it shows creditors that you honored your financial obligation. How much a bad debt hurts your credit depends on factors such as what your scores were before the bad mark and the amount of debt you didn’t pay.  

Just like with a late payment, an account in collections stays on your report for seven years from the date you first became delinquent, even after you pay it off.

However, as you make on-time payments and add positive data to your credit reports, the impact of late payments or an account in collections lessens with time.

See also: 5 Lesser-Known Reasons Why Your Credit Score Drops

4 Tips to Minimize Damage from a Late Payment

I received a question about a past due account from a long-time Money Girl Podcast listener named Jackie. She said:

“I had a credit card that I used for years until I got a new one. Several months later I found out that I was delinquent on the first card for a $20 balance. I’m terrified that this will destroy my credit and erase the good history I built up. What should I do?”

Here are 4 tips to minimize the damage from a late payment:

1.    Act quickly to settle your account.

The sooner you pay the bill, the better your chance of squeaking by without any fees or rate penalties. The good news is a delinquency can’t be reported to the nationwide credit bureaus until 30 days after the due date.  

If you get caught up before 30 days, your mistake won’t show up on your credit file; however, the creditor can still charge the fees I just covered if you miss a due date.

If you don’t get caught up quickly and a late payment is reported on your credit file, it can stay there for up to seven years. On the flip side, your on-time payments and all good marks stay on your credit record for ten years.  

So it’s likely that Jackie’s late payment will show up on her credit report. If you’re not sure what’s on your credit history, stop guessing and pull your free report using a site like annualcreditreport.com or CreditKarma.

Assuming Jackie pays the small debt, it will show as late, put paid in full. She doesn’t need to worry that a late payment erases or negates her long history of on-time payments. No matter what, all the good information stays there for 10 years after you pay off a loan or close a credit card account. And as I mentioned, any negative entries fall off your credit file after seven years.

If a creditor pegs you as late, but it’s in error, dispute it with the credit bureaus right away. Inaccurate or unverifiable information must be removed by law.

However, if you were at fault for a late payment, the creditor is under no obligation to retract it, even if you eventually paid up. The purpose of your credit file is to reflect an accurate history of your account activity.


About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a trusted and frequent source for the national media. Her book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show. 

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