Key Takeaways:

  • Creditors know people make mistakes; just don’t make them too often.
  • Paying a bill late within 30 days can help you avoid damaging your credit score.
  • First-timers can often get a late payment fee waived.

It’s one of the first rules of managing your finances: always pay your bills on time. Most of us do a pretty good job, but what happens when we don’t? After all, it’s not that uncommon – a 2014 study by the Urban Institute found that 1 in 20 Americans are at least 30 days overdue on a credit card or nonmortgage account.

But what happens if you’re 60 days late? Or 90? What’s the difference between making a late payment once a year and being late every two or three months?

Here’s a helpful primer on the consequences of paying your bills late – and how to avoid the problem in the first place.

When late is really too late

One of the worst ramifications of not paying your bills on time – and therefore, one of the main goals to avoid – is having it negatively impact your credit score. If your score goes down, future attempts to get credit or loans become much harder – the number of potential lenders may shrink, and your interest rate for borrowing will almost certainly go up.

Fortunately, not all bills are created equal. As a general rule, the history of many bills, like rent and utility payments (electricity, phone), are not reported to credit bureaus. In other words, your score doesn’t get any help from paying on time, nor do you get dinged if you’re late.

But that doesn’t mean you can stay delinquent forever. The longer you don’t pay one of these bills – often after a second and third notice – your landlord or utility company will likely turn over your overdue account for collection. And that’s when your credit score will get dinged. Having an account in collection can hurt your credit standing even after you pay off your debt in full.

Loans and credit cards are entirely different. That payment history is regularly reported to the major credit bureaus, and creditors can report payments that are 30, 60, or 90 days late.

On the other hand, credit card companies will still often charge you a late fee of about $35 if your payment isn’t on time. Plus, you can rack up additional late fees if you miss more due dates.

If your late payments multiply, you also risk seeing your interest rate rise. For example, a penalty rate on a credit card can climb as high as 30 percent, which will immediately increase your monthly finance charge. If you miss a payment on a zero-percent teaser rate card, chances are you’ll forfeit that promotional rate and get moved up to the default interest rate.

Once the major credit bureaus are notified (after 30 days), a late payment can stay on your credit report for seven years. Payment history accounts for more than one-third of your credit score, meaning a series of late payments could turn a good credit score into a bad one very quickly.

What to do when you’re late on a payment

  • Pay the bill as soon as you can. All things being equal, paying 35 days late is better than paying 95 days late – or having an account transferred to a collection agency.

  • If this is your first late payment and you’re otherwise in good standing with your creditor, think about requesting that the late fee be waived. Banks will often forgive your first offense.

  • If you’re now stuck with a new, higher interest rate, get back to on-time payment as soon as possible. Credit card companies are generally required to reset your interest rate to the pre-penalty rate after six months of paying on time.

  • Finally, keep any other debt accounts up to date. Your goal is to maintain a credit profile that shows this was a one-off mistake, not a regular occurrence (and potential risk) for your current and potential creditors.

An ounce of prevention

Of course, the best way to fight late payments is to avoid having to make them. Setting up a solid budget can go a long way toward making sure money for your monthly expenses are there when you need it.

You can also use today’s technology to help you pay on time. Most banks and creditors enable you to set up text alerts to inform you about bills about to be due. Or put things on autopilot by setting up automatic payment deductions from your checking or savings account. This works particularly well for bills that are the same amount every month, like a car loan or mortgage payment.

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All of the work to maintain and build a good credit score shouldn’t be put at risk by paying your bills late. If it does happen, stay disciplined and fix any collateral damage from a late payment as soon as possible.