You know very well that a missed repayment of your debt can hurt your credit score, but you do not see how much it affects. It is not surprising that you struggle to keep up with repayments despite a full-time job.
It happens because you do not bother to make a spending plan and take into account the total cost of the loan at the time of borrowing. If you have applied for a £1,000 loan, not only do you need to pay back the principal amount but also interest, which means the total cost of the loan is always more than what you borrow.
A few factors are out there that affect your credit rating, and one of them is late payment. Whether you are to pay off a loan in a lump sum or you need to pay down its installments, one late payment fee can drastically drop your credit score.
Further, it can stay on your credit report for an extended period, at least two years. Late repayment can knock at least 100 points off your credit report. So now, you can imagine how quickly you will have a CCJ issued against you if you continue this trend.
Most of the borrowers end up rolling over a loan, and ait becomes harder and harder to manage multiple debts. As a result, the only solution you have left with is debt consolidation loans for bad credit to settle all dues. When you miss a repayment, you invite late payment fees and interest penalties that affect your overall repayment ability.
When is a payment considered late?
It is the most intriguing question when a payment is marked late. If you fall behind your due date, you are making the payment late, but it will not show up on your credit file unless 30 days past due. It means an outstanding debt will not hurt your score if you settle dues within 30 days from the due date.
However, you will end up paying late payment fees. Payment history accounts for 35% of your credit score, and therefore if you go beyond 30 days past the due date, it can damage your credit score very severely. You should take the following steps if you the due date slips through the cracks:
- You should talk to your lender if you are not late by 30 days. Your lender will charge late payment fees and interest penalties, but you can ask them to let it go if you have never been late before.
- If you are late more than 30 days, you can still manage to take control of the situation. Of course, your credit score will go down because it will appear on your credit report, but you can write a goodwill letter to your lender to remove the derogatory mark from your credit file. You will have to explain the true reasons for being falling behind repayments like you lost your job or you had a medical emergency.
How much damage a missed payment can do
The impact of a missed repayment can show up on your credit file for up to two years. However, it does not show a lasting effect if late payments are not frequent.
- If you are 30 days late, it will not leave a negative impact on your credit file for a long time, provided you do not default time and again.
- If you are 60 days late, it will hurt your score badly. However, one missed repayment will not cause long-term damage.
- If you are 90 days late, the default will linger on your report for up to seven years, vanquishing your chances of getting a loan at lower interest rates down the road.
How many points you will lose when you make a default depends on your current credit report. You must note that you will see a more severe drop in your credit score if you have an excellent credit rating compared to those who have a bad credit rating.
It means the higher the current credit rating, the more severe the impact of a missed repayment, and the more time it will take to recuperate. Other essential points to consider:
- Missing multiple payments in a row will have a more damaging impact, even if it is 30 days late. A goodwill letter cannot help you in this case.
- Having missed repayments on multiple accounts are worse than a late payment on a single account.
A missed repayment can pull your credit score and stay for an extended period if you are 30 days late, and you have been consistently making defaults. It not only affects your credit score but also drains money away. When you feel you will not be able to make a payment due to any reasons, you should talk to your lender immediately. It can help you get a solution and avoid penalties. Some reputed direct lenders like Target Loans offer debt management guidance free of cost to such borrowers.