How Missed And Late Payments May Impact Your Credit Score

Sure, missing your phone bill by a couple of weeks might not seem like the end of the world at the time, but it could have a bigger impact than you think. As it turns out, late or missed payments can negatively affect your credit score. Your credit score is one of the main factors that lenders look at when considering your suitability for a home loan. You wouldn’t want a few late or missed payments to be the reason for you not securing a mortgage. 

Here’s how your credit score works.  

What is a credit score?

A credit score, also known as a credit rating, is a numerical value based on your borrowing and repayment history that represents the likelihood of you paying your bills on time. The higher the score, the better, indicating to lenders that you’re a lower credit risk and more likely to make your repayments on time.

Your credit score is determined by looking at several key factors, including:

• Your payment history, including whether you’ve made payments on time, missed or had late payments,  
• The amount of credit associated with your name, like credit cards, personal loans and other debts and liabilities,  
• The length of your credit history, and  
• The number of recent requests you’ve made.

How do late payments affect my credit score?

Missed and late payments can start to become an issue when you regularly fail to pay your bills on time, and the service provider starts following up. 

If you pay a bill more than 14 days after the due date, it can be recorded as a late payment in your repayment history information. Only licensed credit providers, like banks and financial institutions, are able to provide payment history information to credit reporting bodies. Utility and telco companies aren’t considered licensed credit providers, so they’re not able to provide that kind of information. A late payment will stay on your credit history for two years.

With that said, if you miss a payment of more than $150 that is over 60 days overdue, it can be recorded as a default on your credit report by any credit provider, including telco and utility companies. Before being able to list a default, credit providers have to take reasonable steps to collect part or all of the outstanding debt. That includes sending a written overdue notice and following it up with another written notice to let you know that your debt will be reported to a credit reporting body. If you default on a payment, it will stay on your credit history for up to five years 

If you consistently miss payments on a credit account, the lender may report your account as defaulted to the credit reporting agencies. This is a negative mark on your credit report and can lower your credit score.

Even if your account hasn't reached the default stage, late payments can still be reported on your credit report. Lenders may report late payments to credit reporting agencies and these will be visible to other potential lenders when they assess your creditworthiness.

Does paying my mortgage late impact my credit score?

Yes. Just because you’ve secured a home loan doesn’t mean you can stop focusing on maintaining your credit score by missing payments here and there. While a late mortgage repayment won’t hurt your credit score right away, it’s still well worth avoiding.

Most lenders have a grace period in the event you accidentally miss your mortgage repayment. If your repayment is more than 14 days overdue, there’s a good chance it’ll be recorded as a late payment in your credit history. You might even be slugged with a late payment fee. Although it might not seem like a big deal, if you’re a repeat offender it’ll be flagged by your lender. 

If you missed a mortgage payment, the credit provider must provide you 30 days to rectify the situation. If the missed mortgage payment has not been rectified within 60 days, the lender can issue a second notice of default. This process is formalised once a Section 21D notice is issued, where the credit provider can lodge this as a default, which carries a larger significance than a missed repayment on your credit file. 

Once you’ve been issued with a default and a Section 6Q has been issued, you have 30 days to address the default. However, payment arrangements can be made or a request for financial hardship to help you repay the outstanding amounts over a period of time, rather than in one full payment. 

Tips for maintaining a good credit score

Late or missed payments could hurt your chances of getting a home loan down the track, so it’s important to do your best to maintain a good credit score. Here are three ways you can maintain your credit score:

• Pay on time: Make sure to pay your bills and credit accounts on time to avoid late payments. Some lenders even offer incentives or discounts for paying your bills on time, so you could be missing out on a discount by paying late.

• Communicate with service providers: If you're facing financial difficulties and are struggling to make a payment, contact your service provider as soon as possible. Chances are they’ll be able to offer assistance, like a temporary payment arrangement. 

• Check your credit score regularly: It’s worth checking your credit score regularly to look for any inaccuracies or late payment listings. If you find any errors, you can dispute them with the credit reporting agency. There are plenty of free online tools that you can use to check your credit score. If your credit score isn’t in the best state at the moment, there’s no need to stress. You can take steps to improve your credit score. Just read our blog boosting your score here.

Your credit score plays a big role in securing a home loan. Plus, having a good credit score can also unlock access to perks like better loan terms, certain account features and better interest rates.

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This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.