How to Repair Your Credit After a Late Payment
Raise your hand if you’ve ever missed a payment because an e-bill got buried in your inbox! Forgetting to pay a bill on time happens to the best of us. We all lead busy lives and it can be hard to stay organized in our paperless world.
Payment history is one of the main factors affecting your credit score, so a late payment can have a big impact. The other unfortunate thing is that a late payment can stay on your credit history for six years. On the bright side, late payments will only make it on your credit report if they are more than 30 days overdue.
To stay up-to-date on your payments and manage your credit we suggest creating a monthly budget for yourself that evolves as you increase the amount in your savings account, earn additional income or change your spending habits. It’s easier said than done, but making small changes every day has a huge impact over time.
Here are our top 6 steps you can take to repair your credit after a late payment:
1. Act fast
Your credit won’t be affected if you catch your mistake before the 30-day mark. To be honest, a 60-day late payment won’t even drop your score significantly if it’s something that’s out of the ordinary for your payment habits. However, if you let your payment lapse for 90-days or more your creditor may send your debt to a collection agency — something that will leave a big negative mark on your credit history. (Here’s some insight into how to deal with collection agencies).
This is why we suggest acting fast on all loan payments. Whether you use a wall calendar, day planner or your cell phone to stay organized, make a note of when each payment is due so you don’t forget. We all need gentle reminders like this to stay organized!
2. Pay what you owe as soon as possible
As soon as you realize or you’re notified that you’ve missed a payment, make a payment as soon as you can. Even if you can’t pay the amount in full, it’s important to put some money toward it to show your lender that you’re active and on-top of things.
The longer your cell phone bill, car loan payment or credit card statement goes unpaid, the worse it looks to the credit bureau. If you pay-off the outstanding balance quickly, especially if it’s a large balance, your credit score is less likely to take a serious hit.
3. Stay on top of your bills
The best way to bounce back from a late payment is to make sure it doesn’t happen again! There’s several great apps you can use to provide you with automatic reminders on when your bills are due as well as apps that will pay your bills automatically each month.
Prism is a great free option for tracking payments and paying bills on-time. It allows you to see your income, monthly expenses and account balances at a glance. Mint allows you to manage all your finances in one place, including your credit score, investments and bank accounts.
4. Negotiate with your lender
You may be able to strike a deal with your lender to have the late payment taken off your record — as long as you can repay what’s owing and your debt hasn’t been sent to collections yet. In exchange, they may ask you to sign up for an automatic withdrawal program so they can ensure your payments won’t be late in the future.
Even if you haven’t missed a payment, we suggest setting up automatic withdrawal for not only your payments but also to put money into savings accounts and investments.
5. Ask for a goodwill adjustment
Sometimes, all you need to do is ask. On occasion, creditors will grant a “goodwill adjustment” to a borrower for a late payment that was out of their control.
For example, if you couldn’t make the payment because you were stuck in the hospital recovering from an injury, a creditor may remove the blemish from your credit history. All you need to do is write a letter to your creditor explaining what happened and provide proof of the issue. This is in no way guaranteed and usually works best for those with good credit, but it doesn’t hurt to try anyway.
6. Reassess your budget
If you’re regularly missing payments because you can’t afford to pay your bills, your spending habits probably need an overhaul. Paying off your monthly credit card bill might not seem as important as buying the newest iPhone right now, but it will hurt your credit and make it harder for you to get approved for a bigger purchase down the road.
Focus on getting your spending and late payments under control so you can start working on improving your credit score. Spend some time to make a monthly budget for yourself. Try downloading a free budget tracker or template from a reputable source like Credit Canada or Mint.
At Birchwood Credit Solutions, we understand nobody’s perfect and that life gets in the way sometimes. That’s why we look beyond your credit score when you apply for a car loan with us. Get in touch with one of our knowledgeable advisors today to learn more.
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