No matter how good you are at managing money, you’ve probably let a bill due date fall through the cracks, at least once. Whether a late payment occurs because you forgot to send it on time or didn’t have the funds, being unreliable can negatively affect your financial life for many years.
The full extent of the damage depends on the type of account you have and how late you are. Here are five ways to minimize damage to your credit and financial life after slipping up and making a late payment.
[See: What to Do If You’ve Fallen (Way) Behind on Your Credit Card Payments.]
Pay the past-due balance immediately. The sooner you pay a past-due balance, the better your chance of avoiding long-term financial damage. If you don’t allow a delinquency to go beyond 30 days, it can’t be reported to the nationwide credit bureaus. So, getting caught up quickly means that your blunder won’t show up in your credit reports or negatively affect your credit scores.
However, just because creditors can’t report your late payment to the credit bureaus before 30 days doesn’t mean you fly under their radar. They can impose late penalties, such as fees and a hiked interest rate, as outlined in your agreement and depending on laws in the state where you live.
If you pay late for two consecutive months, a typical credit card default rate could be as high as 29.99 percent. Additionally, you could lose rewards or a zero percent interest introductory offer.
If you take longer than 30 days to pay a late balance and applicable fees, it becomes a black mark that stays on your credit reports for seven years from your original delinquency date. Even if you catch up later, it remains in your credit history for seven years. In contrast, your accounts with only positive information stay on your record for 10 years.
Your payment history is typically the single most important factor used to calculate your credit scores. So, just one late payment drags your scores down, especially when you have excellent credit.
If your payment is more than 180 days past due, it can be turned over to a collections company. Having an account in collections also remains in your credit file for seven years and hurts your credit significantly, even if you pay it off.
You can double-check what’s been reported by reviewing your credit reports every 12 months for free at annualcreditreport.com or as often as you like at sites such as Credit Karma, Credit Sesame and Quizzle. If a creditor mistakenly shows you as paying late, dispute it with the credit agencies right away.
[See: 10 Completely Careless Credit Card Mistakes You’re Making.]
Contact the creditor to request a fee waiver. One upside of paying a late balance quickly is that the creditor or merchant may view you more favorably. If you’ve been a good customer and were charged a late fee, try contacting the creditor to discuss having it waived. If there were extenuating circumstances, such as having a payment lost in the mail or cyberspace, explain it and ask to have the fee credited.
Most companies want to keep good customers happy, and they may do you a favor if you simply ask. Customer service representatives typically have a lot of leeway and are more likely to forgive a late fee if you’re polite and have a good attitude.
Negotiate by signing up for automatic payments. Some companies may waive a late fee or give you a discount when you sign up for automatic payments. For example, most federal student loan providers offer an interest rate discount of 0.25 percent when you sign up for automatic payments.
Lenders and merchants know that bills paid automatically get paid on time, which saves them money and administrative hassle. Consider asking for this option to help get a late fee reversed after missing a payment. You may even be allowed to choose your own due date when you use autopay.
Remember that companies can impose a late fee even if you mail a payment early, but it arrives late. If you set up your own automatic payments with online bill pay, be sure to allow enough time to account for weekends and holidays so you never miss a deadline.
[Read: The Best Starter Cards for Building Your Credit.]
Work to reset an increased penalty interest rate. If a late payment resulted in an increased interest rate on a credit card, the issuer must reset your rate to the pre-penalty rate if you make payments on time for six months. Be prompt, or even pay your bill early, so you make sure to clean up your record and keep your interest charges as low as possible.
Set up automatic bill reminders. If you’ve made late payments because your finances are scattered, it’s time to get organized and set up a centralized bill-paying system. You could use a low-tech solution, such as entering bill deadlines on a paper calendar or a monthly checklist.
Digital tools such as a spreadsheet, calendar reminders and apps, such as Mint and Evernote, can keep you on task. Many financial institutions allow you to create email or text alerts to remind you about upcoming bill due dates or other key account information.
If you’re not using free online bill pay to cut checks or transfer funds to billers, consider enrolling. That’s a great way to stay ahead of payment deadlines.
If you have a late payment or other negative items on your credit reports, you can’t make them disappear. However, paying late balances shows potential creditors that you honored your obligation, which helps your standing. Your credit scores will improve over time as negative items age and you build a positive credit history by making payments on time.
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5 Ways to Minimize Credit Damage After a Late Payment originally appeared on usnews.com
