How Long Do Late Payments Stay on My Credit Reports?

Reader question: "I checked my credit reports recently through the free service at AnnualCreditReport.com. I was surprised to find some late payments on all three of my reports, from a Macy's card I had several years ago. I haven't checked my FICO score yet, but I can only imagine this is dragging my score down. How long do late payments stay on a credit report, and do they hurt your score the whole time they are on there?"

Short answer: In order for a late payment to show up on your credit report, the lender or creditor must report the account as being past due. In your case, the creditor is Macy's. Once it has been reported, a late payment can stay on your credit reports for up to seven years. After that they must be removed in accordance with the Fair Credit Reporting Act, or FCRA.

Derogatory entries can do a lot of damage to your FICO credit score. Depending on how late you were, this negative effect could last for years (though it will lessen over time). You can also restore your credit by bringing the account current again. If you catch it early enough, it might not cause any long-term damage at all. The worst you can do is ignore it.

This is a common question among consumers, so I'd like to delve a bit deeper into the subject. Here's what you need to know about late payments and credit reports.

What happens when I miss a payment?

When you take on any form of credit, whether it's a student loan or a store credit card, you agree to certain payback terms. You agree to pay a certain amount each month, and by a certain date.

If you miss the due date for a particular installment, the creditor or lender can report the late payment to the credit-reporting companies (Equifax, Experian and TransUnion).

Most creditors will try to contact you first, to inform you about the delinquent account. They might call you on the phone, send a letter or email, or all three of these things. Larger companies have people who do this full time, as part of the accounting and billing department. But if those efforts fail, they will eventually report the delinquency to the credit-reporting companies.

How long does it stay on my report?

A late payment can stay on your credit report for up to seven years. This is the standard time limit for most items. Only a bankruptcy can stay longer -- up to 10 years in some cases. But for late payments, seven is the magic number.

You can think of your credit reports as a record of your previous debt payments. They basically show how you have borrowed and repaid money in the past. You actually have three of them, one for each of the three reporting companies.

Your FICO credit score is a three-digit number between 300 and 850. This number is based on the information within your reports. Negative entries will hurt your score, while a pattern of responsible credit usage will boost your score.

How much does it hurt my credit score?

How those late payments affect your credit score will depend on three things. A pattern of missed payments will do more damage than a single, isolated event. Similarly, a payment that's late by 90 days or more will generally do more harm than a 30- or 60-day late payment. And if the event happened recently, it will do more damage to your score. This is all based on the FICO scoring model.

Note: A single 30-day late payment can drop your score by 60 - 80 points. A 90-day delinquency can drop it by more than 100 points. When you consider that the FICO scoring range is only 550 points "wide" (300 to 850), you can see how significant this is.

To summarize, the credit damage caused by late payments will depend on three things:

1. How recent the late payments were (last month, two years ago, etc.)
2. How severe the late payments were (30-days, 90-days, etc.)
3. How frequently the event occurred (an isolated incident versus a pattern)

A history of missed payments can hurt your credit score more than any other single event -- especially if you've been more than 90 days late on more than one occasion. Why does it have such a strong impact? The chart below shows why.

If you go back and review your credit reports again, you'll notice that the late payments all have a number assigned to them. This is because creditors and lenders report these delinquencies in one of the following categories:

• 30 days
• 60 days
• 90 days
• 120 days
• 150 days
• Charge off / write off

The first five categories above are self-explanatory. They show how late the payment is, beyond the scheduled due date. The last category (charge off) is when the creditor basically gives up and accepts the loss. Payments that are late by 90 days or more will do the most damage to your FICO credit score. But 30-day delinquencies can also do a lot of harm, if there's a pattern of them. Remember the three criteria we talked about earlier -- recent, severe and frequent.

Important note: If you have a late payment on your credit report, but the lender has not charged it off yet, you can still restore your credit. Get caught up on the payments, and stay on top of them going forward. This should reverse some or all of the damage caused by the initial delinquency. However, if the debt gets charged off and/or sent to a collection agency, it's going to hurt your credit score for a long time.

Lastly, you must understand that a late payment will have a lesser impact on your credit score over time. In other words, it does the most damage when it first gets reported. After that, the effect will lessen up until the seven-year mark, when it comes off your report entirely. So you can actually improve your FICO score during this time (as long as you avoid repeating the mistake). 

This might seem like a long-winded response to a simple question. But I want to make sure you understand the inner workings of the reporting industry. In summary, there are three important lessons to take away from this article:

• According to federal law, a late payment can stay on your credit report for up to seven years. After that the entry must be removed.
• How much damage it does will depend on three factors -- (1) how late you were, (2) how recent it was, and (3) whether or not there's a pattern of delinquencies.
• Your payment history accounts for 35% of your FICO score. So it weighs more than any other single factor. That's why it's so important to pay your bills on time, and to make amends if and when you do fall behind.

This article answers the question: How long does a late payment stay on my credit report? Do you have more questions about this topic? If so, you'll probably find the answers in our credit library. It offers more than 100 articles on this subject. You can also use the search tool at the top of this page to search the entire Home Buying Institute website. Good luck.