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Whenever you open a new account, you're agreeing to make good on your payments. That goes for credit cards, student loans, mortgages, auto loans and any other account that shows up on your credit reports. Missed payments can drag down your credit score and affect your ability to qualify for future financing. You can avoid late payments by setting up autopay and taking other simple steps.
How to Never Miss a Payment
Once you're approved for a new credit account, the lender will likely report your payment history to one or more of the three major credit reporting agencies (Experian, TransUnion and Equifax). Each one maintains its own credit report for you, and your credit score is calculated using the information in your report. Several different factors go into your credit score, but making on-time payments is the most important one. Here are some simple ways to avoid a late payment or missed payment:
1. Mark Your Calendar
Consider adding an alert to your phone or putting a visual prompt on a paper calendar. Even if you're enrolled in autopay, it will remind you to make sure you have sufficient funds in your bank account to cover the payment.
2. Revisit Your Budget
You'll want to make sure your monthly budget can handle your financial obligations. Your expenses, including all debt payments, shouldn't outweigh your take-home pay. It's also wise to check that your due dates are aligned with when you get paid. Leaving a little cushion in your checking account could prevent a late payment.
3. Stay on Top of Your Finances
Even with the best budget, things don't always go according to plan. You might overspend from time to time, or have months where you're hit with extra expenses (like around the holidays). One way to prevent a missed payment is to carve out time every week to check in on your finances. Use it as an opportunity to review your budget, pay one-off bills and reset your spending plan for the week ahead.
4. Set Alerts and Reminders
You can probably enlist your bank to help prevent a missed payment. Most financial institutions allow you to set up text reminders with upcoming bill due dates. Some budgeting apps will also send push notifications when you're approaching a due date. When all else fails, setting a recurring reminder on your phone can keep you up to date on your payments.
5. Enroll in Autopay
Enrolling in autopay is one of the easiest ways to prevent a late payment. When life gets busy, you can rest easy knowing that your payments are scheduled to go through on time. Again, you'll just need to make sure you have the funds in your account to cover each transaction. In some cases, autopay can even save you money. Most private and federal student loans, for example, will shave 0.25 percentage points off your interest rate when you set up automatic payments.
What to Do if You Can't Make a Payment
Roughly three in four Americans are living paycheck to paycheck, according to a recent survey from financial technology platform SecureSave. When times get lean, it may feel difficult to pay all your bills as planned. It's what makes an emergency fund so important. Here's what to do if you're having trouble making your minimum payments.
Mortgage Payments
If you think you might miss a mortgage payment, contact your lender sooner rather than later. Explain the situation and see if there are any resources available to you.
A mortgage forbearance, for example, can temporarily pause or reduce your payments until you get back on your feet. Refinancing is another option. This involves taking out a new home loan and using that to pay off your previous mortgage. That may result in a smaller monthly payment, but is a lengthier process that may have additional costs involved with it. A mortgage modification can do the same.
Credit Cards
If you're struggling to pay your credit card bill, contact your card issuer. They might offer a hardship plan that allows you to temporarily skip a few payments or provide other options to help you get back on track. Some may be open to reducing your interest rate.
For more lasting relief, you might consider a consolidation loan to absorb your high-interest balances. You'll then have one monthly payment that may be more affordable. A credit counselor may also be worth exploring. They can provide financial education around budgeting, debt and other money management topics, and even set you up on a debt management plan if your situation warrants one.
Auto Loans
Defaulting on your car loan could mean losing your vehicle. If you're worried about missing a payment, contact your lender to see what your options are.
Similar to a mortgage, you may be able to skip a few payments without penalty—as long as this move is approved by your lender first. Refinancing your car loan might also unlock a lower monthly payment. In extreme cases, trading in your car for something more affordable might be the best path forward. What matters most is contacting your lender and making a plan before you fall behind on your loan.
Personal Loans
If you can't keep up with your personal loan payments, contact your lender as soon as possible. You might be able to defer your payments, modify your repayment plan or figure out an alternative solution. That might include getting an introductory 0% APR credit card and using that to pay off your personal loan. The goal would be to pay off the new balance before the introductory period ends and interest kicks in.
Student Loans
Those who have federal student loans may qualify for payment relief in the form of deferment, forbearance, income-driven repayment plans or student loan forgiveness.
It all begins with contacting your student loan servicer and making a plan. This can help you avoid a late payment or missed payment. Some private student loan lenders also have forbearance and deferment programs. Another option is refinancing your student loans or seeing if your employer offers repayment assistance as an employee benefit.
Utilities and Other Monthly Bills
If you anticipate having an issue paying an essential bill, reach out to your service provider. They may offer temporary relief if you're experiencing financial hardship.
You may also qualify for resources like the Low-Income Home Energy Assistance Program. Now might also be a good time to reevaluate your bills and eliminate services you don't really need, such as cable or certain subscription services. What matters most is prioritizing essential bills that you really can't live without, like electricity and water.
What to Do if You've Already Missed a Payment
- Make the payment right away. A single late payment or missed payment shouldn't show up on your credit report until you're at least 30 days past due. In other words, make a payment as soon as you can. It can help protect your credit, even if you're hit with a late penalty.
- Call your lender. It's always better to contact your lender before a missed payment, but better late than never. Be sure to communicate that you're aware of the situation and are taking steps to remedy it. They may even waive the late fee.
- Resume timely payments. Following a payment hiccup, try your best to resume on-time payments. It shows that you can manage your credit responsibly, which can only help your credit score. That's especially important if you're trying to improve your credit.
How Do Late Payments Affect Your Credit Score?
A single late payment will stay on your credit report for seven years, but the effect it has on your credit score will diminish over time—even more so if you're taking other steps to get your credit on the right track. Here's a snapshot of what you can expect:
- One to 29 days late: You might face a late fee from the creditor, but late payments won't show up on your credit reports if you make a payment within this window.
- 30+ days late: At this point, you can expect the creditor to notify the credit reporting agencies of the missed payment. If you have excellent credit, you might notice a greater drop in your credit score. Having accounts that are 60, 90 or 120 days past due will probably hurt your credit more than a single late payment made after 30 days.
The Bottom Line
A late payment or missed payment is never ideal, but there are some simple ways to avoid it. Opting for autopay and staying on top of your budget are perhaps the most straightforward. If you do miss a payment, what matters most is remedying the situation as soon as possible.
Free credit monitoring with Experian is another easy way to protect your credit. It will alert you any time something new pops up on your credit report.
