Different Ways a Late Payment Can Impact You
In recent articles, we have discussed that a late payment is the most crucial mistake that anyone can ever make. In fact, it has been proven that such a mistake can leave your credit score dropping over 110 points with Equifax. In light of this, a late payment can do more than simply drop your credit score.
Let’s think about this in an alternative perspective. When a lender provides a borrower with money; however, the borrower forgets or does not provide the lender with the money back on the pre-agreed date, that borrowers trustworthiness to handle money and pay lenders is tarnished. This can lead to many different impacts across your life. Today, we are going to explore a few different ways a late payment can impact you.
The 5 Ways A Single Late Payment Can Impact You
1. Credit Report
The moment that a late payment is reported, the first place it will impact is your credit report. What happens is, when you are late on a payment, or forget to pay a bill, a lender will report the occurrence to the three credit bureaus. As a result, your personalized credit profile will show a late payment on the specified date. Now, the can lead to denied extensions and so much more. If you are planning on doing any major changes with credit, a late payment mark on a credit report may lead to discerning circumstances.
In our opinion, the best way to handle such a situation is to communicate with open honesty. If you were late on a payment for a genuine reason, share this information with a lender. Typically, most lenders will forgive a late payment – if it is not a frequent occurrence.
2. Late Fees
One area that borrowers typically don’t tend to think about is the impact of late fees. Even if you happen to pay a payment before it’s reported to the credit bureaus, you will still be charged a late fee. If you pay close attention to a monthly statement, the lender may choose to include the late fee on your monthly balance. On top of this, you will also notice that lenders also charge interested on this as well – which drives the cost of your monthly bill even higher. So, if you know you are going to be late, it’s imperative to be aware of the late fees you may incur. This could not be truer for those who are finding it hard to balance minimum payments as it is.
Again, we highly advise taking this opportunity to communicate with lenders before the late charges occur. You might be able to convince your lenders to defer the late charges or clear the charges from your account.
3. Credit Score
Once a late payment has been processed and effectively marked on your credit report, your credit score will be impacted as well. Reason being, it will alter the percentage for payments that you made on time. In other articles, we have discussed how much of a percentage this truly has on your credit score. We are talking about a potential drop of up to 100 points! Now,if you have missed a payment and it has already been reported – there are still opportunities available to improve your credit score.
4. Credit Limits
If you did not know, credit lenders have the power to not only increase your credit limit – they can also decrease your credit limit as well. When an individual fails to make a payment, it’s a sign that perhaps a borrower cannot handle the account. Furthermore, late payments may lead to increased scrutiny from the lender – which may lead to future financial discernments. Before you are quick to judge – this rational makes sense. If you are to lend someone money and they don’t pay it back on time – are you going to lend them more money? Of course not! Credit card lenders are the same exact way. The best thing that you can do is keep an open-line of communication and build a strong financial trust with your credit lender.
5. Interest Rates
Another significant area where a late payment can make a lasting impact is on your interest rates. This is one area that we highly suggest that all consumers pay very close attention – as to this is one area can lead to thousands upon thousands of dollars of damage. What you need to do is carefully read the fine print of a credit contract. Perhaps your current company offers great and low interest rates; however, if you miss a payment or don’t pay on time, you can anticipate a monthly interest rate of nearly 30%! Not only will you be responsible for covering your monthly balance, you will need to pay for all late charges AND the interest rate.
This is the core reason why it’s so difficult for individuals to pay off credit card debt. For some, it feels as if they continue to pay and pay and yet their balance never changes. So, if you want to make a significant difference, you need to create a game plan to do so. With the determination, you can be out of credit card debt in no-time.
Creating a Get-Out of Debt Game Plan
If you have recently missed a payment, don’t get discouraged. In almost every single situation, there is an avenue or path to fix, or at least, recover from the damage. However, to jump back, it will require the dedication and financial will to make a change. You need to step up and take full financial responsibility, develop a fool-proof get-out-of-debt game plan, and act.
As we mentioned through-out this article, lenders are NOT bad people. If you are open and communicate with them, honestly, what’s happening, they may be able to work with you. While this is not a guarantee, as long as you are not constantly missing payments, the odds are in your favor.
Financial Advisor - MoneyBeagle.com
David is our in-house financial advisor with years of experience in the credit card industry. He became interested in credit cards after working for several years at a major bank. He holds a Masters Degree in Finance.