Anyone who has missed a credit card payment knows how alarming it can be once you realize it. You start to think about how much it will cost you in late fees, and more importantly, what kind of hit your credit score will take.
It’s understandable to feel that way, especially when your payment history is around 35% of your credit score. No one wants an honest mistake to blow up their credit. But before you worry, you should know exactly how late credit card payments work and whether your payment will even be flagged as overdue.
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What is a late payment by credit card?
That would make a good trick question on a test. While the obvious answer is “any credit card payment made after the due date”, that is not how the credit bureaus see it.
Your card issuer cannot report your late payment to any of the three credit bureaus until at least 30 days after the due date. This is because all of these credit bureaus use the Metro 2 reporting format, which requires creditors to follow the industry standard for reporting delinquencies. This is how it works.
On the date of the report, your card issuer sends a status code regarding your account to one or more credit bureaus. This code indicates the current status of your account. Accounts zero to 29 days past due is a code 11, the code for current accounts. Codes for reporting late payments start with accounts that are 30 to 59 days past due.
This obviously doesn’t mean that it’s a good idea to take your time with your credit card payments. Your card issuer may still charge a late fee as soon as you miss the due date, and you will also have to pay interest on the amount owed.
The damage a late payment can do to your credit score
You are safe if you receive your payment before this 30 day deadline. Later, and your credit score could be in trouble. There is no set amount for your score to drop, as the extent of damage depends on several factors, including:
- Your current credit score.
- Your previous payment history.
- The delay of your payment.
You have the most to lose if you have a high credit score and have not been overdue in the past. For example, if you have a credit score of 780 without any late payment, a single credit card marked 30 days past due could reduce your score by 110 points. As you go over 60 and 90 days late, your score suffers more.
Late payments stay on your credit report for seven years, but that doesn’t necessarily mean they’ll continue to affect your score for that long. If you only have one slip, its impact will be weaker the less recent it becomes.
If you have a lower credit score to start with and a few late payments on your credit report, another will likely lower your score by 60 to 80 points. And every late payment makes it harder to improve your credit score.
How to deal with late credit card payments
The best way to deal with late credit card payments is to avoid them in the first place. There are only two reasons for a late payment: you are running out of funds or you have simply missed the due date. If this is the first case, you need to revamp your financial habits because the longer you leave your credit card debt unpaid, the more your balance will increase.
It’s easy to have a credit card payment slip in mind, especially if you’re using multiple cards to maximize your cash back or rewards. Setting up automatic payments on all of your cards is the most effective way to avoid this.
If you miss a due date, what matters most is making the payment immediately. You will avoid any credit score issues by getting payment before it is 30 days past due. Even if it’s been longer than that, the sooner you pay, the sooner you can stop the bleeding. If this is your first missed payment with this card issuer, you should also call the company to ask if the late charge is waived. Most card issuers don’t hesitate to give you a break the first time around.
Paying late with a credit card can hurt your wallet and credit score, so it’s not something to be taken lightly. But if you charge it within 30 days and take steps to avoid it in the future, the worst-case scenario is late fees that your card issuer can take from your bill anyway.