It happens to the best of us.
Even though you’ve always paid your bills on time, the date slipped past you a few months ago and you just forgot. Or maybe money was tight and you had to choose which bills to take care of and which to put off until your next paycheck.
Now you’ve received a notification that your credit score has dropped.
That’s because missed payments show up on your credit report payment history: A long-term account of your behavior when it comes to making payments on time for credit items like credit cards, auto loans and mortgages.
Your payment history makes up 35% of your entire credit score.
It’s hard to know what to do in that situation, and when you’re stuck between guilt and anxiety, it’s even harder to figure out how it’ll affect your future.
Can you fix your credit? How long does the missed payment stay on your file?
If you’re struggling with questions like these, or if you just want to know more about what determines your credit, read on.
How Does Payment History Affect Your Credit Score?
Your credit score will be important if you ever want to buy a home, take out a loan for unexpected expenses, or even if you just want to buy a new car.
Your credit score is a way to measure your ability to manage credit, which in general means any long- or short-term loans.
When you look into getting a new loan (like a new credit card, a mortgage or an automobile loan), the lender you approach will use your score to assess things like how much to give you and how much interest to charge.
Your credit score is a three-digit number that usually ranges from 300 to 850. A score between 300 and 550 is considered bad, while a score above 700 is considered good.
But how does payment history factor into your score compared to other influences? Let’s take a look at how your credit score is calculated:
Your Credit Mix (10%)
Are the credit products you manage from a broad range of different kinds of credit? If not, it’s hard to determine whether or not you’ll be able to manage a new credit product. This could lower your score.
Any New Credit You’ve Opened (10%)
Have you recently gotten a new credit product? If so, you could be less suitable for an additional new credit product. This could lower your score.
The Length of Your Credit History (15%)
Are you a new credit customer? Without a long history, it’s hard to determine if you’re creditworthy. This could lower your score.
Your Amounts Owed (30%)
Do you carry high balances on your credit products? If so, a new loan might make you more at risk for missing payments on all of them. This could lower your score.
Your Payment History (35%)
Have you typically made your payments on time? If not, this could lower your score.
As you can see, the average credit score calculation weighs your payment history at around a whopping 35% of your score, even more than how much money you already owe. That’s because your credit score is meant to demonstrate that you can make payments regularly, not necessarily that you have too much debt.
The bottom line is that the single most important thing you can do to keep your credit score in good condition is to pay your bills. Put simply, if you miss payments, your score could decline.
But that’s only part of the story.
What Makes Up Your Payment History?
First, it’s important to remember that your payment history is just that — a history. Due to the way it’s reported to the credit bureaus, it’s impossible for the information to be immediately up to date. Instead, it can take between 30 and 60 days for any changes to take effect.
That’s why people can often be frustrated when their credit score continues to decrease even though they’re caught up on their payments.
At the same time, it’s a history that reaches far back into the past. There’s an urban legend that if you swallow your gum, it can stay in your system for seven years.
Think of late payments as swallowed gum: Your credit history will have records of late payments up to seven years after they first appear on your file.
(That rumor about gum is false, incidentally. Swallow away!)
Second, to understand what goes into your payment history, you need to know the different kinds of credit available to you. Any of these has the potential to impact your score.
(FYI: The reason it’s not guaranteed that each source of credit will impact your score is that every lender has different policies about reporting to the credit bureaus. It’s always a good idea to assume that any product you have from the list below will affect your payment history.)
Every credit card you own will affect your payment history, which is why it’s so important to stay on top of your billing cycle and make sure you’re making your payments on time.
Whether or not you sign up for a store credit card, if you have a payment plan with a retailer, it will likely affect your payment history.
Unfortunately, this is also the kind of account where just having one can be a negative impact on your credit score, even if you’ve already paid your balance in full.
Note that this doesn’t apply to layaway plans where, chances are, you don’t have access to what you’re looking to buy yet, and you’re paying installments in cash.
It doesn’t matter if you opt for purchase financing or for a lease, in this case. Both operate in the same way when it comes to your credit, acting as an installment loan. Any late payments will affect your history.
Mortgage or Home Loan
Since a home loan will probably be the largest balance you will ever carry, it’s important that you make payments regularly, not just so your payment history reflects your hard work, but also so you keep up with your financial goals.
Finally, a few other major flags can show up on your payment history that go above and beyond late payments. These are serious issues that you’ve experienced in the past and are known as derogatory records.
Filing for bankruptcy is an awful experience in itself. It can bring up a host of emotional issues and have financial effects that last for years to come — including your credit payment history.
If you’ve filed for bankruptcy, it can take between seven and 10 years before it is removed from your records, depending on what kind of bankruptcy you’ve declared (Chapter 13 bankruptcy, in which you repay a portion of your debt vs. Chapter 7 bankruptcy, in which you don’t repay anything).
Not only does a bankruptcy stay on your file, but it has a substantial impact on your score. In fact, after filing bankruptcy, most people will have a credit score below 550. That might not seem so devastating in light of the fact that the lowest scores is 300, but it’s well within the “bad” category of credit.
If you’ve missed several payments in a row, your lender can submit your account to a collection agency. This can actually open up a new listing on your payment history, which will already be in arrears and negatively affect your credit. Worse yet, a derogatory collections flag can stay on your file for seven years.
How Late is Too Late?
Now that you know what kinds of accounts can show up on your payment history, you’re probably wondering what it takes for them to start negatively impacting your credit.
The short answer is that any late payment at all is bad news for you, but only a payment later than 30 days is bad news for your credit score.
That’s because the credit bureaus aren’t looking to punish people for the milder scenarios outlined at the beginning of this article.
Missing a payment deadline by a day or two shouldn’t affect your score, but the longer you let it go, the more that effect will build up.
To help understand how that works, you can look at the way lenders report to credit bureaus in the first place. Think of it as a system of “levelling up” where the higher your level is, the worse off you are.
You start in good standing at level 1.
If you miss a payment deadline (1-30 days late), you technically “level up” from 1 to 2, even though your lender won’t report your payment as late.
If you miss a second payment deadline (31-60 days late), you “level up from 2 to 3,” and so on.
Since your payment history is reported monthly, that means if you end up 90 days late on a payment, you don’t just have a 4 on your history: You can have a 1 from the first month, a 2 from the second month, a 3 from the third month and a 4 from the last month.
That’s made worse by the fact that even a 30-day late payment can lower your credit score by up to 100 points.
Can a Late Payment Be “Fixed”?
The good news is…sometimes.
In general, you have three ways to have negative payment information removed from your payment history. The bad news is that the quickest ones are only useful in specific circumstances.
Write a Goodwill Letter
As I said above, the credit bureaus truly aren’t looking to punish people for making little mistakes.
If you have good credit and your payment history reflects that you have always made your payments on time, but you’ve recently made a mistake that’s caused a 30+ day late flag on your file, you might have a case for getting it removed.
To do it, you can write a goodwill letter to the creditor in which you take responsibility for your mistake but let them know of circumstances that caused you to miss your payments.
Dispute an Error
The other situation in which you have a chance of getting a flag removed is if it shouldn’t be on your file in the first place. It happens.
No system is perfect, and sometimes your payment status is reported to the credit bureau incorrectly.
In this case, you should have proof that you made your payment on time, and reach out to your creditor to have the report changed on your file. It can take persistence, unfortunately, but with evidence, your chances are good.
But You May Have to Wait it Out
Sorry. In every other circumstance, the only way to clear negative reports on your payment history is to wait.
On the plus side, even though it takes seven years to rid yourself of a late payment, the older a flag like that is on your file, the less it will typically affect your score.
This is why it’s so important to actively maintain your credit: Prevention is the best defense.
What’s the Best Way to Prevent Missing Payments?
It can sometimes be difficult to keep up with your bills. Thankfully, in today’s technology-focused future, there are a lot of options available that can help make it easier.
Consolidate Your Due Dates
If you have multiple credit products, chances are you also have multiple due dates. That can get confusing, and while marking them on a calendar or setting a reminder does work, you can also change your due dates to suit your schedule.
Why not set all of your bills to be due on the day following payday, or on the first of the month?
Use Less Credit
OK, this one is cheating – but it makes sense. Since your closed credit accounts still positively affect your credit score, if you pay them off and start paying cash for more things, you can keep your score at its highest.
It might not be realistic for everyone, but it’s an option if you know you’re going to be looking to take out a major loan in the future and need a high credit score to get the best interest rate.
Set Up Auto Pay
For those with a consistent income, this is a godsend. If you’ve struggled to remember to pay your bills in the past, have your financial institution set up automatic bill payments before your credit payments are due.
Keep in mind, though, that this can train you into bad behaviour. If you’ve relied on auto pay for a long time and eventually get a credit product that doesn’t have the option, you could be more likely to miss payments because it’s simply not something you think about anymore.
Check Your Credit
Remember how I said that creditors sometimes make mistakes? The best way to hold them accountable is by knowing your own credit.
By law in the U.S., you’re entitled to a free credit report from each of the three major credit bureaus every 12 months. That means that you could get one every three months to stay on top of your payment history.
Curtis Westman is a professional writer who judges the merit of each day by scoring it a three digit number between 350 and 850.