Missed a monthly payment? Take these steps immediately

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Missed a monthly payment? Take these steps immediately
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Maybe money is tight; you had more expenses (or less income) than you expected and something has to give. Or perhaps you just got busy and forgot to make a payment. Either way, you’ve paid a bill late and you’re probably thinking, “What happens now?”

What happens if you’re 1-29 days late — and what to do next

Credit cards

If you miss a credit card payment even by a day, you’ll likely be charged a late fee. On a personal credit card, that first time late fee can be as much as $27, but on a business credit card you may be charged more if you are late; $39 is common though a couple of business credit card issuers charges up to $49. Note though; if you pay your consumer credit card late twice within a six month period, the issuer can charge more for the second infraction; up to $38 currently.

Do you usually pay your balance in full to avoid interest? That late payment will wipe out that advantage and you will be charged interest on your average daily balance. On top of that, interest may be charged on late fees as well. In order to get your grace period back you’ll need to pay off your statement balance in full and then continue to pay in full each month.

Read more: Dangers of credit card debt and how to avoid them

What about your credit reports? Credit card issuers don’t report your payment late unless you are at least 30 days late. (You can check your personal and business credit data for free on Nav to see whether you have late payments hurting your scores.)

Tip: If you haven’t been late on a credit card payment in the past, call your issuer and ask it to waive the fee. Many will as a one-time courtesy for a good customer — some even advertise this as a feature of the card.

Mortgage payments

Missed a mortgage payment? In most cases you’ll have a grace period before a late payment fee kicks in. Most mortgage lenders don’t impose a late fee unless your payment is at least 10-15 days late. But you may start getting annoying robocalls reminding you that your payment is overdue if your payment hasn’t been received as of the due date.

The late fee on a mortgage can be steep — often 5% of the mortgage payment. (For example, 5% of $1,000 is $50.) That can add up quickly, especially on a larger mortgage payment.

Car payments

Auto lenders will also impose late fees. The amount will be stated in your contract. But also keep in mind that auto lenders can often repossess quickly — and some do. Make sure you reach out to your lender if you fall behind on a car payment to avoid being left high and dry without a vehicle. (Repossession laws vary by state.)

Similar to credit card payments, most auto and mortgage lenders do not report a late payment to credit bureaus unless you are 30 days late so you probably won’t see the missed payment on your credit yet.

Missed a utility or cellphone payment? Typically after a few days a late fee will be assessed but you’ll probably still have access to that service until you miss a second payment. Utility and cellphone payment histories aren’t typically reported on consumer credit reports, though they may appear on what are sometime known as “specialty” credit reporting agencies that collect and report that type of information.

What happens if you’re 30-59 days late — and what to do next

If you are late 30 days on a credit card, car loan or mortgage payment it’s very likely that late payment will appear on your credit reports, and your credit scores could drop significantly; a drop of 50 points or more would not be unusual.

In 2011, FICO released research on the impact of mortgage late payments on credit scores. As you can see from this chart, the higher your credit scores to begin with, the more likely they are to drop due to a late payment. (Keep in mind, though, you have more than one credit score, and not all will drop the same amount or be affected for the same length of time.)

Consumer A Consumer B Consumer C
Starting FICO® score ~680 ~720 ~780
FICO® score after 30 days late on mortgage 600-620 630-650 670-690
Time to recover ~9 months ~2.5 years ~3 years

Source: FICO® Banking Analytics Blog ©2011 Fair Isaac Corporation 

In addition to the credit score drop, it’s likely your lenders will get more aggressive with phone calls and letters reminding you to make your payments. There is a greater likelihood your vehicle may be repo’d at this point.

If you are falling behind on a regulated utility (like water or electric) be sure to reach out to your provider for help. You may be able to get onto a payment plan that will help you avoid disconnection. In addition, state law may prevent disconnection if you are elderly, have certain documented medical conditions and/or if there is severe weather (very hot or very cold).

Here’s a guide on understanding your credit report and score — and steps you can take to improve your credit

What happens if you’re 60-89 days late — and what to do next

As you fall further behind on your payments, lenders are going to become much more aggressive. There will likely be phone calls and letters and demands for payment will escalate.

Your credit card issuer may freeze your credit line so you can’t use the card. If this happens, reach out to see if you can work out a payment arrangement to get back on track.

If you are 60 days or more behind on your car payment and need to keep your vehicle to get to work, school etc., you may want to talk to a bankruptcy attorney to find out what your options are. Otherwise you might find it’s been repossessed.

Your credit scores are going to drop more significantly the further you fall behind. Credit scoring models look at how recent the late payment was, how many times you were late and how severe the delinquency. Sixty days late is worse than 30 days late, regardless of the amount of the late payment.

An unpaid utility or cellphone account may be closed and turned over to collections at this point. Collection accounts usually appear on credit reports, even if the bill wasn’t reported before that time. A collection account is severely negative and can cause your credit scores to drop significantly, leaving you with a bad credit score.

If you’re 90 days or more late…

Your credit scores have already been significantly impacted by your late payments at this point. Other lenders may take note of your financial troubles. Your credit card issuers could lower your credit limits (even if you are paying your credit card on time), or raise your interest rates on future credit card purchases with proper advance notice.

Get professional advice. It’s time to talk with a credit counseling agency and a bankruptcy attorney to find out what your best options may be. Even if you decide to slog through it and catch up on your own, those professionals can give you a better idea of how to get back on track and protect yourself while you do.

Not surprisingly, FICO’s research shows that the credit score drop from a 90-day late payment is greater than that of a 30-day late payment, and it also takes significantly longer to recover.

Consumer A Consumer B Consumer C
Starting FICO® score ~680 ~720 ~780
FICO® score after 90 days late on mortgage 600-620 610-630 650-670
Time to recover ~9 months ~3 years ~7 years

Source: FICO® Banking Analytics Blog ©2011 Fair Isaac Corporation

How to improve your credit score

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Gerri Detweiler About the author:
Gerri Detweiler has more than twenty years of experience guiding individuals through the confusing world of credit. She serves as head of market education for Nav, which provides business owners with free personal and business credit scores and financing advice. Detweiler's articles have been widely syndicated. She is the author ...Read more
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