How Late Payments On Loans And Leases Affect Credit Score

Paul Dughi Brick House
In this Post:
  • Auto Loans and Leases
  • Home Rentals or Leases
  • Mortgage Payments
  • Student Loans

How late payments on loans and leases affect credit score

We’ll forgive you for thinking that timely credit card payments are where payment history begins and ends. After all, that’s what dominates all talk about how on-time payments affect your credit score. Well, we’ll let you in the secret that loans and leases play a large role in this area too. Let’s look at the different types of loans and leases, and how payment for each one affects credit score.

Auto Loans and Leases

Just as late payment on credit card bills are reported by the lender to credit bureaus at around 30 days past due, late auto payments are also reported at 30 days past due. This means you will most likely accrue late fees, and your credit score will be harmed. Each additional month this is past due, it will hurt your credit score incrementally. One missed payment will negatively impact your score. A second missed month will indicate a potential problem and have a greater impact. At 90 days, you will have missed three payments and your score can take a big hit. Since creditors look to credit scores to assess your ability to pay in the future, multiple missed payments signal potential problems.

How much the late car payment affects credit score depends on factors such as your overall credit history such as credit age, credit mix, new credit and utilization. (Utilization tracks the amount of available credit you have and the amount you have used. A good credit ratio will be 30% or less, meaning if you have $10,000 of available credit, you have used $3,000 or less.)

One late payment over a long period of timely payments will not have a significant impact, but the more recent the late payment is, the bigger the impact will be as creditors may look at it as a potential change in your financial situation. As time passes and future payments are made on time, it will appear more of an anomaly and not a trend.

You should also be aware that some auto loan lenders have a shorter grace period than that which credit card companies offer. In fact, while it depends on the terms of your loan, even a one-day late payment can affect your credit score if it is reported. Most lenders do provide a grace period for you to pay before reporting the late payment. But the grace period is often shorter for auto loans than for other payment plans such as bills: It may be as short as 10 days past the due date.

Once the bill is unpaid past the grace period, it’s considered late, although auto lenders typically don’t report late payments to credit bureaus until 30 days past the due date. So, whether it’s 10 days late or 30 days, it will still be reported to the credit bureaus as a late payment. Check the terms and conditions section of your loan or lease agreement for grace periods.

Missing a payment will also likely incur late fees. In some cases, missing even one payment may trigger a clause in your loan or lease terms that allows lenders to increase your interest rate.

Restoring your good credit will mean making up for any missed payments as soon as possible and staying current thereafter. Over time, this will diminish the impact of one missed payment. Continuing to miss payments will cause further erosion of your credit score.

Home Rentals or Leases

Rental Homes

Landlords have no obligation to report late payments or missed payments to credit reporting bureaus. In fact, many don’t because there is a cost for them to do so. However, if your rent or lease is 30 days past due, they may report it.

If you fail to pay your rent when it’s due, and before an established grace period, you may be liable for late fees. Check your agreement for details on potential late fees and grace periods. Typically, grace periods for rent are very short (3-5 days).

Grace periods and late fees may also be mandated (or limited) by local and state regulations.

If you’re late paying your rent, your landlord may have the right to assess a late fee for missing a payment. They can also pursue eviction subject to local and state laws.

If you want to remove a delinquency report on your credit, contact the landlord or leasing agent directly and ask them to remove the report after you’ve paid up. However, they are under no obligation to do so .

If you believe the report is inaccurate, you can contact the credit agencies and ask for an investigation.

If that too, doesn’t bring about the desired results, rest assured that paying your bills on time, making sure your accounts are paid in full, and lowering your credit utilization can help mitigate the damage.

While the repercussions of late rent or lease payments are steep, unfortunately, generous reward for timely payment isn’t a given. Timely rental payments aren’t automatically reported to credit bureaus.

However, you can choose to use a rent-reporting service to report the payments for you. There are several options you can find online, but they may require you to get your landlord to sign up and verify your payments. There will also be a fee to signup and a charge that can range from $5 to $10 a month. Once you are registered, and your landlord verifies you made your payments in a timely manner, the service will report this to the credit bureaus which can build your credit.

Mortgage Payments

Brick House

Even one late mortgage payment can have a significant impact on your credit score and your ability to secure credit in the future. It may also impact the interest rate at which you can get loans in the future.

Like every late payment, a late mortgage payment will stay on your credit report for seven-ten years.

Most lenders have a 15-day grace period after the due date before they assess a late fee, although the number of days may vary. If you haven’t paid your mortgage 30 days after the payment due date, you can be sure that your lender will report it as delinquent to the credit bureaus.

Since most people will protect their home above other bills, a missed mortgage payment can precipitate a significant drop in your credit score.

If you anticipate you are going to be late on your mortgage payment, you may be able to mitigate some of the damage by contacting the lender ahead of time and asking for some help.

If you haven’t discussed late payments prior to missing the payment, better late than never. Once there is a late mortgage payment on your credit report, your first step should be to contact the lender to see if you can come to an arrangement moving forward.

Once the late payment has been reported, it’s going to take several years before the impact will lessen. You’ll need to pay what you owe, including any late fees, and pay the rest of your bills on time. Paying your bills on time, making sure your accounts are current, and lowering your credit utilization can help mitigate the damage.

However, you may be relieved to learn that although late payments will impact your credit score, it likely won’t affect your home ownership unless you continue to be in default of your loan agreement over a period of time. Foreclosure proceedings typically don’t begin until you have missed four monthly payments.

Student Loans

Student Class Rooms

There are more than 44 million people that owe on student loans. Collectively, they owe $1.5 trillion in debt in the U.S. alone. More than 11% of student loans are delinquent (90+ days past due).

If you fail to pay your student loans, there can be serious consequences that go beyond your credit score. First, you will be hit with late fees. Your debt will continue to increase each month until you are current. Late fees will be charged and interest will be charged on the outstanding balance each month until it’s paid.

Failing to pay your student loans can have serious consequences. If you have a federal loan and miss nine months of payments, you can find your wages garnished along with any tax refunds. In this case, the lender can get a court order to take a portion of your paycheck to satisfy your debt. They can do the same with your tax refund.

You need to check your student loan agreement to determine the consequences of missed payments or late payments. In most cases, late payments will not be reported to credit reporting agencies until they are 45 days late for private loans or 90 days past due with federal student loans.

If you fall behind, contact the lender and explain. They may be willing to work with you on getting caught up and what gets reported.

If you can’t pay your student loan, there are a few steps you can take:

  • Contact your lender and change your repayment plan
    You can ask to change your repayment plan and extend the time you have to pay. Check with your loan servicer for options. You may end up paying more in interest fees, but it’s better than not paying.
  • Consider consolidation loans
    If you have multiple student loans, you can combine them into a single loan. While it won’t lower your interest rate, it can roll all of your loans into a single payment and you may be able to lower your overall payments and extend your loan.
  • Consider deferment or forbearance
    Under deferment, you may be able to put your federal student loan payments on hold. You would need to demonstrate economic or certain circumstances such as unemployment, active military service, or enrolled in college. Deferment can be granted in six-month increments, lasting up to 3 years.

    Forbearance allows you to stop or reduce the amount of payments for up to a year. Lenders are required to provide mandatory forbearance if your monthly loan payment is equal to or greater than 20% of your gross monthly income and other specific reasons. Lenders may also grant forbearance at their discretion for other circumstances.

In any case, you can’t afford to wait to take these steps. If you are in default or have not made a payment on your student loan in 270 days, you are not eligible for deferment or forbearance.

If you’re thinking further down the road — as you should be — to employment opportunities, know that being late on a payment or two likely will not have an impact if you subsequently get caught up. Defaulting on student loans, however, will prevent you from working for many federal, state, and local government jobs. You will be unable to get a federal security clearance. Many states will not grant — or will revoke — licenses and certifications for professions such as nurses, lawyers, realtors, or teachers if they are in default of a loan.

Lower credit scores can also impact your ability to secure credit in the future or force you to pay higher interest rates to get a loan.

Many private employers do credit checks on candidates before extending an offer, and poor credit ratings may impact their decision-making.

Thinking about things more positively, you should know that student loans can help your credit score if you are making timely payments. If you pay late, your credit score can be impacted negatively. Federal student loan servicers usually wait 90 days to report late payments. Private student loan providers can legally report missed payments after 30 days, although many will wait until 45 days have passed.