What a missed payment does to your credit score

Americans haven’t been this worried about falling behind on their debt since the start of the pandemic, new data from the New York Federal Reserve shows.

The central bank’s monthly Survey of Consumer Expectations found that Americans’ perceived probability of missing a minimum debt payment in the coming months rose to the highest level since April 2020.

The increase was most pronounced among adults over the age of 60, those without a college degree and those with annual household incomes below $50,000, according to the New York Fed survey, which polled roughly 1,300 households in December.

It’s an “uncertain time for many Americans,” said Matt Schulz, chief consumer finance analyst at LendingTree. Amid a softening labor market, a growing share of adults are “nervous about their current jobs, worried it’ll take forever to get their next one, concerned that it’ll be harder to get credit and unsure about their ability to make all of their minimum debt payments over the next few months,” he said.

However, even a single missed payment can have lasting financial consequences, LendingTree’s research shows.

One missed payment can ding a credit score by about 80 points, on average, a new report by LendingTree found. In October, site researchers analyzed 100,000 credit reports.

Consumers with a single missed payment average a 553 score, roughly 80 points lower than those with perfect payment histories, the report found. Credit scores typically range between 300 and 850.

“Paying your credit card bill even just a few days late can cost you,” Schulz said. “You can get stuck with late fees up to about $40 each time. However, the biggest hit comes later.”

The consequences of lower credit scores could include lower credit limits, higher interest rates for new loans and less access to credit overall. In general, the higher your credit score, the better off you are when it comes to getting a loan and obtaining better financing terms. 

The credit score implications worsen for borrowers with better scores, research also shows. “The bigger they are, the harder they fall,” said Ted Rossman, senior industry analyst at Bankrate.

If your score is near perfect, you could lose 100 points or more because of a single 30-day delinquency, according to Rossman.

If you have a lower score, the impact of a missed payment would not be as significant, he added. Because borrowers in riskier credit tiers typically have a few dings on their credit, “that new one isn’t going to hurt you as much,” Rossman said.

The damage also gets successively worse depending on the extent of the delinquency, the experts said, referring to the difference between a missed payment being 30 days delinquent and “late-stage delinquency,” or over 90 days past due on payments.

If you are in jeopardy of missing a payment, “ask the lender for a break,” Rossman said.

“Many will work with you, perhaps pausing payments for a time or lowering your interest rate,” he said. “It can be possible to avoid credit score damage if you speak up early enough and get permission to pay less or maybe even nothing at all this month.”

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