Late payment? How much will this affect your credit?

Most of us already know that late payments will hurt our credit score. However, we are currently experiencing an unprecedented situation with the coronavirus, and for some people, it's simply not going to be possible to make all of their monthly bill payments. Nevertheless,  it's critical to be aware how much of an impact late payments can really have on your credit score, and what exactly the consequences are of making even just one late payment.

First, can you find the money to pay your bills?

It may seen like an obvious question. Of course you've probably considered all your sources of money to keep your bills paid. However, just in case, we have pulled together a list of 8 expenses that can be cut when your income has been drastically reduced. For example, could you take your car off the road for a month or two, and save on insurance and gas in order to pay your credit card bill? Could you cancel cable TV for a few months to help pay your mortgage?

If you can't, what will happen if you pay your bills late?

Well, the answer depends on whether or not your creditor reports these late payments to the credit bureaus. If you've been excellent at making your payments on time, your creditor might choose to give you grace on your first late payment. However, don't bank on the forgiveness of your creditors. Payments that are 30 days past due have likely been reported to the credit bureaus. This will negatively impact your credit score. With the coronavirus pandemic sweeping the globe many creditors such as mortgage providers, car loan providers and credit card companies are offering deferrals of loan payments for up to six months. However, this doesn't' happen automatically, you have to apply. Don't just think you don't have to pay your bills for six months and it will be OK. Unless you have received approval, it will work negatively against your credit score.

A late payment can stay on your credit report for up to six years in Canada, and the lender you owe can keep those records for much longer. If you have a late payment on your credit report that you still need to pay, the longer you wait, the more it will hurt your score. It's in your best interest to get that bill paid off as soon as possible.

When you apply for another form of credit down the road and potential lenders see this late payment on your credit report, it can easily sway their decision. Even if you've got many years of positive payments under your belt, those one or two late payments can really hurt you in the future. In many cases, paying your bills on time does not positively impact your credit score, but not paying your bills can have a negative effect on your credit score, especially once it gets sent to collections. It can also have an impact on what kind of interest rates you will be offered by lenders. The lower your score, the more you will pay in interest, if you are even offered a loan at all.

It's not worth the risk

Don't put your credit score at risk by making late payments. If, as a result of the coronavirus pandemic, you are truly unable to make your bill payments, call and speak to your loan provider and see what they can do to help. Don't just let the loan payment go unpaid as that's a sure fire way to lower your credit score.

*******

Refresh financial offers custom credit building solutions to help you build your credit score FAST.