What Is The Effect Of A Late Payment On Credit Score?

Updated: March 16, 2024 Author:

Quick answer: If you miss a payment on an agreement like a loan or credit card then a record will remain on your credit report for the next 6 years. A late payment will cause a drop in your credit score that can make it harder to borrow money and obtain credit in the future. While the impact of a late payment will reduce over time, lenders will take into account a missed payment as part of any application you make within the 6-year window. 

    What happens when you miss a payment?

    If you miss a payment then the lender will ask the ratings agencies to place something called a payment marker on your credit report. This is essentially just a note that you have missed a payment and that your credit score needs to be recalculated accordingly. 

    Because your credit score is a number that quantifies how creditworthy you are, a late payment is a strong indication that you are likely to miss payments in the future. If, however, it proves to be a one-off due to human error, your credit score will not remain suppressed for the entire 6 years the late payment market remains on your credit report. This is because credit ratings agencies and lenders are always most interested in your most recent financial behaviour. 

    Can just one late payment ruin your credit score?

    Every case is different, and each ratings agency has their own method for calculating scores and evaluating the impact of late payments. For this reason, we cannot give an exact amount by which your credit score will drop. That being said, drops in credit scores of around 100 points are commonplace. 

    While it is always possible to improve your credit score, it’s always best not to have to recover from something that can be easily avoided in the first place. This will make it considerably easier to be approved for things like mortgages and credit cards when you need them in the future. 

    How long will my credit report show a late payment?

    A late payment marker will remain on your credit profile for 6 years before it is removed. This will be regardless of the amount of time that elapsed before payment was made, or how much you owed as a consequence of the late payment. In some cases, you can be talking of just a few pounds paid to a lender one day late forming a negative part of your credit profile for 6 years. 

    The small piece of good news here is that the impact the late payment marker has on your credit score will reduce over time. Lenders are principally interested in your most recent financial behaviour as they consider it the most reliable measure of how likely you are to make your next repayment. This means that your credit score can recover long before the late payment marker is finally removed from your credit profile. 

    However, even if your credit score fully rebounds before the 6-year period is up, lenders will be able to see the late payment marker and will take it into account when considering your next application. 

    What’s the worst scenario for a late payment?

    When you miss a payment there are other things which happen other than your credit score dropping. These include: 

    • The lender charging higher rates of interest on the amount owed, imposing a flat rate fine, or both 
    • Potential restrictions on how much you can borrow, and on what terms, in the future 
    • Continual failure to pay and make good on a late payment will ultimately result in a default or CCJ 

    The latter case represents the worst case scenario for a late payment and can ultimately lead to bankruptcy proceedings beginning. This will have a dramatic impact on your credit score and ability to secure credit from all types of lenders in the future. If at all possible given your individual financial circumstances, it is always best to find a solution before the late payment escalates in the manner described above. 

    Can you appeal against a late payment?

    Yes, there are certain instances in which you will have grounds to appeal against a late payment that has been added to your credit profile. The key is to have a valid reason for the late payment occuring and to apply using the proper channels. Here are some common grounds that you may consider using, if applicable: 

    • Redundancy that placed you under financial and emotional stress resulting in human error or a tightening of your finances that was out of your control in the short term 
    • The loss of a loved one that placed you under emotional stress and resulted in your entering a period of unexpected bereavement 
    • Sickness and illness that resulted in an extended hospital stay which made it impossible for you to arrange payment in a timely manner 

    If successful, you will be able to add a 200-word notice of correction to your credit profile which provides context for the late payment. 

    Please note that every case will be judged on its individual merits and using one of these grounds is by no means a guarantee that your appeal will be successful.

    How can I avoid late payments?

    Late payments can virtually always be avoided by taking the following key steps that will eliminate human error and minimise the chances of experiencing extended hardship: 

    • Set up direct debit payments so that the money automatically leaves your current account each month, eliminating the prospect of human error 
    • Budget with a spreadsheet on your phone so that you can see where your money is going each month and plan accordingly for one-off spends like home maintenance or vehicle repair
    • Reach out to your lenders if you anticipate financial difficulty may be on the horizon. This is where having a budget and automated direct debits is really useful because it will allow you to identify potential issues and take action before they result in a number of late of payments