How Much Do Late Payments Affect a Credit Score?

Your credit score is a three-digit number that gives a simple indicator of your credit worthiness. It is used by lenders, financial institutions and insurance companies to make decisions about whether they wish to do business with you. Many things affect your credit score to varying degrees, including your payment history. Late payments lower your credit score and impair your ability to open credit cards, get loans and obtain insurance policies.

Types

There are several types of information that affect your credit score. Late payments are one of the most important factors, but according to FICO, the leading credit score company, the other considerations are: balances owed, length of your credit history, the types of credit accounts you have and how much new credit you have.

Effects

Each factor that goes into determining your credit score affects it by a certain degree. Late payments are the most important factor because your payment history accounts for 35 percent of your credit score. The next highest factor is your account balances, which count for 30 percent. The length of your credit history makes up 15 percent of your credit score, while the types of credit and amount of new credit each make up 10 percent. Based on this formula, your payment history accounts for more than one-third of your score, so frequently making late payments lowers your credit score significantly.

Factors

According to FICO, your payment history is made up up several factors. Late payments are a major part of your history, and the amount of the late payments, the type of accounts and how long they are overdue affect how much of an impact this information has on your credit score. Your payment history also includes accounts that have gone to collection agencies and any legal judgments against you.

Time Frame

Payment history always affects your credit score, but late payments lose some of their effect over time. Recent information weighs more heavily than items that may be several years old. If you are late in paying certain accounts but manage to get caught up, you will minimize the effects as long as you maintain an on-time payment history.

Warning

Credit bureaus can make mistakes in reporting your payment history. Your credit score is based on information obtained from the credit bureaus, so if they are reporting late payments incorrectly, it will bring your score down. You are entitled to a free copy of your credit report every year upon request from the three major credit reporting bureaus: Equifax, TransUnion and Experian. Check your reports annually and file a dispute if you notice any incorrect late payments. The bureaus must remove erroneous information, which will bring up your credit score.