Payment history is the single most important factor that makes up your credit score. Paying all your bills on time builds a positive credit report, demonstrating that you are a low-risk borrower who can responsibly manage your credit. On the flip side, late payments on your credit report can significantly lower your credit score and indicate that you have trouble managing your finances.
Here are four myths you can’t afford to believe when it comes to late payments and your credit.
Myth #1: Late payments affect your credit the day a bill becomes past due.
The reality: Late payments generally don’t appear on your credit report until they’re at least 30 days past due. If you have a bill that’s less than 30 days late, you can pay it now to avoid any damage to your credit score. Of course, you still may be subject to other penalties, such as late fees.
Myth #2: Once a late payment lands on your credit report, the damage is done, and there’s nothing you can do about it.
The reality: Once a bill is 30 days past due, it can be reported to the credit bureaus as a late payment and appear on your credit report. But the late payment can be updated again when it’s 60 days, 90 days, and 120 days late, at which time it may show up as an account in collections. Each time it gets updated, it can do further damage to your credit score. So even if your bill is already late, you should pay it off as soon as possible to mitigate further consequences.
Myth #3: Late payments affect you forever.
The reality: The impact of late payments on your credit score gradually decreases over time, and your credit can recover as long as other negative items, like additional late payments or accounts in collections, don’t get added to your credit report. After seven years, the late fee can be removed from your credit report and no longer affect you.
Myth #4: A single late payment isn’t a big deal.
The reality: The impact of a single late payment on your credit score depends on the state of your credit. If you already have poor credit and/or a history of past due bills, one late payment may not be that significant. But if you have good credit, you could see a steep drop in your credit score after a single late payment.