By Tom Flynn

Anyone who has ever opened a credit card account knows that late payments are bad. It’s the reason why there is a due date, after which payments are considered late and penalties are applied. But, for late payments that age beyond 30 days, that’s only the beginning of the consequences. Late payments are bad for your credit score, which is bad for your pocketbook. Yet, according to the Urban Institute, one out of 20 Americans is at least 30 days late with a credit card payment. This article looks more closely at the impact of late payments and one way an increasing number of people are able to avoid them.

More than any other type of credit activity that can impact your credit score, late payments are the worst. They show up as a blemish on your credit report and then linger there for up to seven years. FICO weighs late payments the heaviest in its credit scoring – 35 percent – because they are the most indicative of future behavior. The job of the credit bureaus is to gauge the level of risk a lender or credit card company would take on by issuing you a loan or a credit account. If you are perceived as a risk, you are more likely to pay higher interest costs or declined altogether.

One 30-Day Late Payment – Not a Huge Deal

The good news about late payments is their impact on your credit score diminishes over time. If you have just one 30-day late payment on your credit report, the more it ages, the less weighting it is given in scoring your credit. However, a new, late payment will drop your score for 12 to 24 months. If you are able to maintain a record of on-time payments during that time, your score will likely inch its way back up.

Multiple Late Payments – You May Have a Problem

Multiple 30- or 60-day late payments are more difficult to overcome. The credit bureaus look for a pattern, and if the pattern shows a tendency to revert back to poor credit management, your score will suffer even more. However, even with that, the further you allow your late payments to fade into history, without incurring new ones, the more your score will recover.

A 90-Day Late Payment – You Have a Big Problem

You may not be so fortunate if you ever let a payment go to 90-days past due. About 2.95% of all credit cards issued in 2016 are 90-days plus delinquent. A 90-day late payment is not just a blemish on your credit report, it is a black mark signifying your status as a definite credit risk regardless of its age on your credit report. With a 90-day late payment on your report, you are likely to pay the highest interest costs for credit. The takeaway here is, while a 30- or 60-day late payment may be unavoidable at certain times, you must do everything you can to avoid a 90-day late payment.

The bottom line is one 30- or 60-day late payment is not the end of the world as long as you maintain a good payment history going forward. You will see a temporary decline in your credit score but it should recover after a year or two. Periodic or sporadic late payments may be considered an on-going risk, keeping your score down for a longer period of time. The only thing worse than a 90-day late payment is a Chapter 13 bankruptcy. The only good news is that a 90-day late payment will fall off your credit report after seven years while a Chapter 13 bankruptcy takes 10 years.

Preventing Late Payments

When it comes to maintaining a good credit history, late payments are nothing to fool around with. You should do everything possible to avoid them. For many people, late payments are a money management issue — when the due dates don’t match up well with cash flow during the month. One solution is to change the due dates on your credit cards to a time of the month when you have few other obligations, or spread them throughout the month to minimize their burden on your cash flow.

Automated Payments May be the Answer

However, if the problem has to do with forgetfulness, you may be better off putting your payments on automatic pilot. With most credit card issuers, you can opt to automate your payments by selecting a specific date of the month to have them debited from your checking account. Of course, it is important to select a date that coincides with a paycheck to ensure you have sufficient funds.

There are two big advantages to automatically paying your credit card bills:

• Ensure on time payments: When on automatic payments, you’ll never forget to make a payment; it’s the credit card company’s responsibility to collect on time.
• Simplify your finances: No bills, no clutter, no thinking about it.

While automated payments can help you avoid late payments there are some drawbacks to consider:

• Automatic debits could cause overdrafts: If your cash flow tends to run lean at times, your checking account may come up short at the wrong time, causing overdraft and return check fees.
• You can become complacent: Having your bills paid automatically could cause you to become complacent about checking them to ensure charges are correct or checking for fraudulent charges.
• You get stuck on minimum payments: If you carry a big balance on your credit cards, your automatic payments may keep you from paying it down quickly enough to avoid lingering interest costs if you are making minimum payments.
• Once you start, it’s hard to stop: Credit card companies make it really easy to start an automatic payment plan, but they can sometimes make it difficult to stop.

The automated payment option is not for everyone. However, if you are able to maintain a sufficient balance in your checking account and remember to review your bills each month, it offers the best solution for avoiding late payments.

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