by Ben Sweiry ·
Modified on 8 December, 2023
Yes, a late payment will affect your credit rating. The exact impact on your credit score will vary depending on several factors including your credit history and how late your payment is made.
Late payments on payday loans are prevalent across America, with approximately 12 million Americans using payday loans annually.
Whenever you are looking into using any kind of personal loan or other financial product, remember that responsible credit management is key. It is important to stay on top of your payments, and take quick action if you find yourself facing a late payment situation.
What is a Late Payment?
A late payment is when you fail to make a payment on a credit account, personal loan, payday loan or any other kind of bill by the specified due date. Whether it’s a credit card payment, mortgage installment, or title loan, missing the deadline can have repercussions on your credit history and overall financial well-being.
Late payments are typically classified into different categories based on the duration of the delay. The most common classifications are 30 days late, 60 days late, and 90 days late. The severity of the impact on your credit score increases as the delinquency period extends.
How Common is a Late Payment?
Late payments are relatively common, and a significant portion of the population has experienced them at some point. As of the latest available data, approximately 23% of Americans have reported making a late payment on a bill within the past year.
Approximately 12 million Americans use payday loans each year, exposing a considerable portion of the population to the potential risks of late payments due to the short-term and high-cost nature of these loans.
California
Statistics show that around 2.5 million payday loans are issued annually. The state’s payday loan default rate is approximately 6%, emphasizing the prevalence of late payments despite regulatory efforts.
Texas
Over 8 million payday loans are taken out annually, and the default rate hovers around 7.6%, underscoring the challenges faced by borrowers in meeting repayment obligations.
Florida
With a payday loan volume exceeding 5 million annually, experiences a default rate of approximately 5.5%.
What Happens if I Make a Late Payment?
Late payments can have consequences that affect your credit and future financial activity. The impact on your credit rating is one of the most significant affects of late payments. Your payment history constitutes a significant portion of your credit score, making timely payments crucial for maintaining a positive credit profile.
Credit Score Impact
A late payment can cause a noticeable drop in your credit score. The exact decrease varies depending on factors such as your credit history and the severity of the delinquency.
According to FICO, a leading credit scoring model, a 30-day late payment can result in a credit score drop of 90 to 110 points for an individual with a previously excellent credit score.
Interest Rate Increases
Late payments can trigger penalty interest rates on credit cards and loans, making future borrowing more expensive. An increased interest rate can lead to higher monthly payments and additional financial strain.
Negative Impact on Credit Report:
Late payments remain on your credit report for up to seven years, influencing lenders’ perceptions of your creditworthiness. Multiple late payments can make it challenging to qualify for new credit or loans.
What Next?
Keep Calm
Determine the severity of the late payment. Is it 30, 60, or 90 days overdue? The longer the delay, the greater the impact on your credit score.
Make the Payment ASAP
If possible, make the payment as soon as you realize it’s late. Even a payment made after the due date can minimize the negative consequences compared to an extended delay.
Speak to your Lender
Reach out to your creditors to explain the situation if you foresee ongoing financial challenges. Some lenders may offer temporary solutions, such as hardship programs or modified payment plans.
Automate Payments
Set up automatic payments for your bills to reduce the risk of future late payments. Many lenders offer autopay options, ensuring timely payments without manual intervention.
Monitor Your Credit Report
Regularly check your credit report for inaccuracies or discrepancies related to late payments. Disputing any errors with credit bureaus is essential to maintaining an accurate credit history.