It can happen to the best of us: a bill payment slips through the cracks, resulting in a late or missed payment. Maybe the cable bill slid down behind the desk, or perhaps an emergency expense popped up and you didn’t have enough cash to pay your utilities. How will a late payment affect your credit? And how long does it take to rebuild credit after a later payment?
Key Points
- Late payments can affect your credit score if they’re over 30 days overdue.
- The more time that passes from the payment due date and the more frequently you miss payments, the more significant the impact on your credit score.
- You can rebuild your credit score after a string of late payments by making bill payments on time, making more than the minimum credit card payments, and keeping your credit card expenditures well below your credit limit.
Can You Rebuild Credit After A Late Payment?
Yes, you can repair your credit score after a late payment. There are several ways to rebuild your credit health following a history of late bill payments. These include paying all your subsequent bills on time every month, paying your credit card bills in full each billing cycle rather than the minimum payment, and keeping credit card expenditures to less than 30% of your credit limit.
How Long Does It Take To Rebuild Credit?
The amount of time it takes to rebuild your credit score depends on a couple of things; namely, how bad your credit score is, and where you want it to be. Certain credit score ratings can have more significant effects on your credit score, and different negative remarks will remain on your credit report for various lengths of time.
For instance, an R9 rating (which can occur due to bankruptcy or an account in collections) on your credit report is the worst rating you can get. Further, certain negative remarks can remain on your credit report for longer than others, which affects your credit score and the time it takes to repair it.
How long it takes to improve your credit score also depends on the steps you’re taking to give it a boost. If you’re not making an effort to improve your score, it won’t budge much. But active and varied steps to improve your financial habits can help improve your score more quickly.
Keep in mind that your credit score and credit report are typically updated once a month. So, depending on the new information added to your credit report during that time, your credit score may show changes. That’s why it’s helpful to check your credit report and credit score on a regular basis to see where you’re currently at with your credit-building endeavours.
How To Repair Your Credit Scores After A Late Payment
No matter what mistakes you’ve made in the past, you can always improve your credit score. It may take time, patience, and some work, but your diligence will pay off. Here are some things you can do to help improve your credit scores:
Make Up For Missed Payments
Pay any missed bills, as soon as possible, before they hurt your score any further. Once you’ve made up for what you’ve missed, make sure you keep up with your future bills to avoid any additional missed payments.
Make Minimum Credit Card Payments
If you have credit, use it, but be sure to settle up before the payment due date. If you can’t repay the entire balance, try to pay the minimum amount so that you make the due date without having to come up with the full balance.
Use A Secured Credit Card
If you can’t get approved for a traditional credit card, apply for a secured credit card. With this type of card, you pay a deposit before you can use it. Start with a small limit and use the card responsibly to build healthy credit.
Keep Your Credit Card Expenditures Low
Avoid maxing out your credit cards to keep your credit utilization ratio low. More specifically, try to stay below 30% of your credit limit to protect your credit score.
Keep Tabs On Your Credit Score
Canada has two official credit reporting agencies: Equifax and TransUnion. You can get your credit report and credit scores with each of the credit bureaus online or by mail. In addition to the credit bureaus, there are several services available online that offer Canadians a way to check their credit report and scores, many of which are free of charge. These include CompareHub, Credit Karma, and Borrowell.
Is There Anything I Can Do To Prevent Late Payments From Being Reported?
Depending on how late your payment is and your current account standing, you may be able to avoid having a late bill payment reported to the credit bureaus.
It’s in the lender’s best interest to work with borrowers to help them stay on track with their loans or credit accounts. While some consumers might make it a habit of being late and irresponsible with their bill payments, others may have found themselves in a financial predicament despite an otherwise positive credit background and their efforts to make good on their payments.
In the case of the latter, creditors may be willing to provide a few extra days to make up for a late payment. If you’re usually smart with your finances and this was just a one-off late payment, your creditor might be willing to work with you. If you’re late making a bill payment, reach out to your creditor right away to explain the situation.
When Do Late Payments Affect Credit Scores?
Late payments may have a negative impact on your credit scores, so you’ll want to avoid them if you can.
However, you might be relieved to hear not every late payment will be recorded in your file. Moreover, each credit account on your file is assigned a number from 0 to 9. Depending on how late your payment is, your credit rating will vary.
Payments Less Than 30 Days Late
Generally, payments less than 30 days late aren’t reported to the credit bureaus and thus may not affect your credit. Accounts with late payments less than 30 days late will receive a credit rating of R1. However, your lender or creditor may charge you a late penalty or increase your interest rate as a result.
Payments 30 – 120 Days Late
If your payment is more than 30 days late, it may likely be reported to the credit bureaus. This could negatively impact your credit scores. Moreover, depending on how late your payment is, it will receive a credit rating of R2 for payments 30 to 60 days late, R3 for payments 60 to 90 days late, and R4 for payments 90 to 120 days late.
Late payments recorded on your credit report can stay on your file for up to 3 to 6 years, depending on the credit bureau.
Payments More Than 120 Days Late
Accounts with late payments more than 120 days late may be charged off and sent to collections. This can severely negatively affect your credit, and you’ll receive a credit rating of R9.
The following chart outlines the ratings given and what each one means:
| Account paid within 30 days of due date | R1 |
| Account paid more than 30 days past the due date, not more than 60 days late | R2 |
| Account paid more than 60 days past the due date, not more than 90 days late | R3 |
| Account paid more than 90 days past the due date, not more than 120 days late | R4 |
| Account paid 120 days late or more but had not yet received an R9. | R5 |
| Account in collections or bankruptcy. | R9 |
How Late Payments Can Affect Your Credit And Ability To Get Credit
If a late payment is noted on your credit report, its impact on your credit scores will depend on several factors:
- How late your payments are. The longer your late payments remain unpaid, the more negatively it may affect your credit score.
- How frequently you make late payments. Creditors will take note of whether this is a one-time occurrence or a habit of late payments. The more frequently you miss your bill payment due dates, the worse for your credit score.
- How recent your late payment is. Recently missed payments might be a red flag to a lender, suggesting you are having financial difficulty and may not be able to honour your debt.
Where Do Late Payments Show Up On Your Credit Report?
Late payments may be included with information about your credit accounts on your credit report. Accounts that are listed may include credit cards, lines of credit, personal loans, and other credit accounts. In this section of your credit report, a history of payments for your credit accounts will be listed, including late payments.
How To Avoid Missing A Payment
Rebuilding your credit after a string of late or missed payments can be done, but it takes a lot more effort and time than just ensuring that all your bills are paid on time in the first place. To avoid making a late payment in the future, consider the following:
Create A Budget
If you’re missing payments because you can’t afford them, set up a budget and stick with it. A detailed budget will help you see how much money is coming in versus what’s going out. If you’re spending too much relative to what you earn, it may be time to start cutting your spending.
Set up Payment Reminders
If disorganization is the issue, you can use calendars, phone reminders, account alerts, and automatic payments to help you get those payments in on time.
Update Your Mailing Address
If you happen to move, make sure you update all your accounts with your new mailing address. That way, you can avoid missing payments due to lost mail. Alternatively, you can set up online billing and notifications so you can get your statements via email instead, if you prefer.
What Is A Credit Score?
Credit providers often look at credit scores as part of their approval process, typically to determine the likelihood that a borrower will make their payments on time.
Credit scores higher than 660 are considered good and will generally make it easier to get approved for credit. If your score is lower, you might be seen as high risk. Exact numbers will vary, and lenders will look at factors other than your credit score.
It’s important to note that your payment history carries a lot of weight — up to about 35% of your credit scores. So, if you’re late making bill payments, your credit score could be negatively affected.
What Is A Credit Report?
Your credit report contains the following types of information:
- Personal information. This includes your Social Insurance Number (SIN), date of birth, current and previous address, and employment history.
- Credit information. Your credit report also contains detailed information about your credit accounts, credit history, and payment information.
Final Thoughts
No matter what your credit score is, it’s important to stay on top of your finances. While there are several factors that affect your credit, payment history is a big one. If you’ve been late on any bills in the past, your credit score can suffer. But with a few strategies and tools, you can rebuild your credit score over time.
