How Do Missed Payments Affect Your Credit Score?

When you set up an account with a company, this usually comes with a commitment to pay back anything you spend with them. This could be repaying money you’ve borrowed, or paying for services they’ve provided, like electricity or gas, or your mobile phone contract. But, what happens if you don’t pay what you’ve said you will, when you said you’d pay it?

There could be all sorts of reasons you make a payment late, or miss it altogether. Whatever the reason, where your credit score is concerned, it adds up to the same end result: your score takes a hit. But, why do missed payments make your score drop? And how much will it drop by? Let’s find out.

What counts as a missed payment?

You might think that if you don’t make a payment on the day it’s due, it immediately goes down as “missed” and your credit score takes the hit. But this isn’t always the case. Depending on which lenders you’ve borrowed from, a payment that isn’t made on the day it’s due might not always go down on your credit report as “missed” straight away. Lenders will usually contact you if you don’t make a payment on your due date, and some may give you a few days grace period to pay up before they report that you’ve missed the payment to the credit reference agencies.

But, you shouldn’t assume that you’ll get this grace period, or that you’ll always get a few days leeway if you’ve made payments late before. Grace periods aren’t something that all lenders offer, and those that do might have rules about when they will and won’t let you off being a couple of days late. So, a sensible thing to do is to contact your lenders and ask them about their policies. Even if you don’t think you’ll ever make a payment late, at least you’ll know where you stand if it does happen.

Why do missed payments affect my credit score?

Before we get into this, let’s recap on what your credit score is. Remember, your credit score is a number that sums up your financial history to show lenders whether your behaviour matches the type of behaviour they want to see in their customers. Lenders want customers who will pay them back, because this is how they’re able to keep their businesses going, lend money to new customers who need to borrow, and keep their interest rates as low as possible.

Lenders use the information in your credit history to predict what you’ll do in the future, so if you’ve missed payments in the past, this could make lenders think you’re less likely to pay them back now. Since lenders want customers who they’re sure will pay them back, having a history that includes missed payments means you might not look like a great match to them. If you’re not a perfect, or great match for a lender, then this can result in a lower credit score.

How much will a missed payment affect my credit score?

Your credit score weighs up all sorts of different information, so if everything else looks good, then a single missed payment that was clearly a temporary blip or a mistake won’t necessarily affect your score too badly. But, the more missed payments you have in your history, and especially if they reveal a pattern of behaviour or show that you could be struggling to stay on top of your borrowing, then the impact to your credit score will be much bigger.

But, even if your score doesn’t seem too badly impacted by your missed payments, they can still affect your ability to get credit if you need it. All lenders are different and have their own unique rules about who they will and won’t agree to lend money to. With some, one late payment in your history could be all the reason they need to turn you down. Others, on the other hand, might be a bit more lenient, and be prepared to take a chance on you even with a few missed payments in your past. It’s all down to the individual lender.

How long do missed payments stay in my credit report?

The information in your credit report stays there for six years, and this includes records of whether you’ve made your payments on time or not. But the good news is that lenders tend to pay more attention to your recent credit history, because how you’re handling your finances now is a better way for them to tell how likely you are to pay them back than how you were managing, say, four years ago.

That’s not to say that missed payments buried deep in your credit history will have no effect on your credit score at all. But, the older information in your report gets, the less impactful it becomes.

How can I avoid missing payments?

The best way to avoid missing payments is to set up a direct debit or standing order with your account providers. This way, as long as you have the money to make the payment available in your account, all your payments will be made automatically, and you’ll never miss one again. 

With credit cards in particular, you can set up your direct debit to cover the minimum payment, so you’ll never miss a payment or make it late. And then, if you want to pay off a bit extra, or pay your bill in full, then you can do this yourself whenever it suits you!

How else can missed payments affect me?

Aside from the impact to your credit score, missing payments, or making them late, can affect you in other ways. The most common of these is the penalty fees many lenders charge if you don’t make a payment on time. But, by missing a payment, you’ll also pay more in interest, because your balance stays higher for longer.

Another impact of missing payments could be voiding any special promotional offers you have, like 0% interest deals. For example, if you have 0% interest on a credit card and miss a payment, the provider could end your deal immediately. This means you’ll have to pay interest on what you still owe them, which could turn out to be much more expensive than you originally planned.

What happens if missed payments are recorded in my credit report by mistake?

If a lender or a company you have an account with has recorded a missed payment in your credit report, but you’re certain that you made the payment on time, then the first thing to do is to contact them. If they have made a mistake, they’ll be able to rectify this and remove the missed payment marker from your credit report. Or, if they still think you did miss a payment, they’ll be able to explain to you when this was, and why it counted as missed.

What to do if you have missed payments

If you have missed payments in your credit history, then what you do about them really depends on your situation.

If you forgot to pay

If you missed a payment because you simply forgot that it was due, or didn’t allow enough time for the payment to go through, then you should pay it straight away to get your account back on track. The missed payment may still be recorded on your credit report, but if you get back on track and make your future payments on time, it’ll be clear that it was a one-off mistake and the impact on your credit score will be minimal. To make sure all your future payments are made on time, you can follow our tips above and set up a direct debit or standing order with your lenders so that as long as there’s enough money in your account, your payments will get made automatically.

If you don’t want to do this, because you want to control how much you pay towards your borrowing or bills every month, or for other reasons, then setting reminders on your phone for a few days before the payment is due can help to remind you to log into your online accounts with your lenders and pay them, with plenty of time for the payments to go through.

If you’re struggling financially

Missing payments towards your borrowing or bills is because you are, or were, struggling financially, is more common than you might think – millions of people in the UK have faced difficulties like this, and you’re far from alone. If this is all behind you, and you’re confident you won’t miss any more payments in the future, then just keep plugging away at it – as time goes on and the longer it’s been since you missed those payments, the less they’ll count towards your credit score and impact your chances of being approved for credit.

But, if you’re facing financial difficulty now and can’t keep up with the payments you need to make, then it might be time to get some help. Speaking to your lenders, or the other companies you owe money to, is a vital first step. If they know you’re struggling, then they can help. And, you might be surprised how understanding lots of companies are, and how much they can do to make things a bit easier on you. They can freeze interest on your account, make sure you’re not hit with any more penalty fees, and can even sort out a different, more affordable repayment plan for you. But you have to take the plunge and speak to them!

If this help doesn’t go far enough, and you still feel like what you owe is unmanageable, then advice from a qualified debt adviser could help you take stock of your situation and make a plan to go forwards. At CredAbility, we’ve partnered with the Debt Advisory Centre to help you find assistance if you need it. The Debt Advisory Centre’s initial advice is free, but if you decide to enter into any debt solutions they recommend to you, then ongoing fees may be payable for this.