Why Late Credit Card Payments Don’t Always Hurt Your Credit Score
There’s more wiggle room than you might think to pay your bills.
It’s a warning often repeated: A single late credit card payment can lower your credit score by as much as 100 points. That’s true – kind of. If you pay your bill 30 or more days late, it could indeed end up on your credit reports and damage your score. And if you start out with excellent credit, that hit could amount to more than 100 points.
But missing a credit card payment by just a few days won’t automatically put you in credit score purgatory. You may have to pay a late fee if you’re a couple days late, but the late payment won’t go on your credit reports and stay there for seven years, as a more serious slip-up would.
The 30-Day Time Frame
The three major credit bureaus – Experian, TransUnion and Equifax – allow creditors to report payments that are 30, 60 or 90 days late. But the reporting format they use, called Metro 2, which complies with the Fair Credit Reporting Act and other legislation, doesn’t let creditors report payments that are just two days past due, or even 29 days past due.
According to the credit reporting manual used by the three major credit bureaus, which outlines best practices for using the Metro 2 format, “the ‘clock’ for a 30-day delinquency starts 30 days after the due date, as opposed to the billing date.”
This 30-day window applies to all debts, including car payments and mortgages, notes Rod Griffin, a spokesman for Experian.
Take a late credit card payment, for example. After your billing cycle closes, you have at least 21 days to pay before incurring late fees, according the federal Credit CARD Act of 2009. From there, you have 30 days to pay without it being reported to the bureaus. In total, that gives you roughly 50 days after your billing cycle closes to pay your credit card bill without damaging your credit.
The Fair Credit Reporting Act, which regulates how banks report information to credit bureaus (also referred to as credit reporting agencies, or CRAs) doesn’t specifically define how late a payment must be before a lender can report it, according to Scott Maurer, an associate clinical professor in consumer law at Santa Clara University in California. But that law does require credit bureaus to correct or delete information that’s inaccurate or unverifiable.
“Let’s say a consumer paid 29 days late, but it is showing up on his/her report as 30. The consumer should send a dispute letter to the CRA stating the date that the payment was due and the date the payment was actually made,” Maurer says. To contest it, the consumer should send copies of supporting documents to both the lender and the credit bureau.
Paying Late Can Still Hurt Your Wallet
While paying a few days late won’t harm your credit, it can still carry a steep cost. For one thing, you’ll probably have to pay a late fee, typically $35. If you have trouble staying on top of payment due dates, these can add up quickly.
“[The credit card issuer] can raise your rates on a going-forward basis. The rate hike won’t apply to your past balances, but it will apply to your future purchases,” says Chi Chi Wu, staff attorney at the National Consumer Law Center. Issuers generally must provide 45 days’ notice before raising your rate.
However, Wu says, if you’re more than 60 days late, the issuer can raise your rate immediately and apply a penalty APR to your past balances. Penalty APRs can be as high as 30 percent. “You don’t want that to happen,” she says.
Because credit card rewards aren’t protected by the CARD Act, you could potentially lose points or miles for being even a day late, Wu says. If you have a promotional 0 percent APR deal, it could be canceled.
Some issuers may notify you before the overdue payment is reported to the bureaus so you can avoid these pitfalls. Not all banks are so accommodating, though.
“The best thing to do is to contact the lender regarding its policy for reporting delinquencies and notification before a delinquency is reported,” says Griffin, the Experian spokesman, noting that practices vary among banks.
What to Do When You’re Really Late
So what happens when you’re behind on a credit card payment by 30 days or more? The damage to your credit can be substantial, but not permanent.
“At a high-level, the FICO score considers presence of delinquency information across all credit obligations,” writes Can Arkali, principal scientist at FICO, in an email. “However, the FICO score can also consider amount(s) owed on delinquent accounts.”
How much damage you’ll see also depends on your score starting out, how late you were and how recently you missed payments, he notes. A large delinquent debt, for example, could hurt your score more than a small one, especially if you’ve missed a payment before. But as you make on-time payments, the impact of these negative marks will fade. A late payment drops off your credit report entirely after seven years.
If you’re more than 30 days behind, the best thing you can do is to make at least the minimum payment as soon as possible. Ask your issuer to consider waiving the late fee, and read your credit card statement to find out when your next payment is due. Avoid making late payments in the future by setting up auto-pay – even if it’s just for the minimum amount due.
Learn From Your Mistakes
In the grand scheme of things, missing a single credit card payment is a relatively minor mistake, and one you can learn from. Don’t beat yourself up over it. You might have to pay a late fee and other penalties, but if you catch your error soon enough, it won’t cause lasting damage. And if it’s the first time you’ve slipped up, your creditor might waive fees and penalties. Chalk it up to experience, and make sure to get your next payment in on time.