When Late Payments Hurt Your Credit and How Long it Lasts

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Updated on Friday, February 19, 2016

Very Upset Woman Holding Her Many Credit Cards.

When you borrow money—whether it is to buy a car, refinance other debt, continue your education, purchase plane tickets, pay medical bills, or go shopping—you sign a contract that outlines the rules of how and when you’ll repay the money. But what happens when you miss a payment or can’t repay the loan?

1. What Happens When You’re Late on a Payment? 

If you miss a payment on your loan, the lender will likely contact you to ask you to make a payment, and it may charge you a late payment fee. Unless the lender gives you a grace period, the credit reporting agencies will also be notified that you were late with a payment, and this information will be added to your credit report. Usually, late payments are not reported to a credit reporting agency until you are at least 30 days past due. If you continue to not make payments, the lender may send your account to either an internal or third-party collections agency.

The collections agency will try to get you to make a payment, and it may take more severe measures. Missing payments on an auto loan can lead to the car being repossessed, along with additional fees and expenses. Defaulting on a mortgage can result in the lender foreclosing on the house, although this process can’t begin until the borrower is 120 days delinquent.

Unsecured debts don’t involve a physical object lenders can take away, but they do have the option of suing you. If they win a court judgment against you, they can collect the debt by garnishing—taking money out of—your paycheck or taking money directly from your bank accounts.

2. When Is the Date of First Default?

The day you miss a payment is the date of first delinquency, but the point at which your unpaid loan goes from delinquent to default depends on the contract and where you live. “Generally, after a missed payment there is a grace period, during which there may be fees,” says Lisa Stifler, a senior policy counsel at the Center for Responsible Lending. “Then it goes into default after some time.” For example, for credit cards the date of first default is usually 180 days after a missed payment.

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3. How Does Missing Payments Affect Your Credit?

Missing loan payments can affect your credit multiple times over. Late payments are reported to the credit reporting agencies when you’re 30, 60, 90, 120, 150, and 180 days late. Some lenders may charge-off the loan at that point; writing it off their books because they assume you won’t repay it.

The charge-off is a new negative mark on your credit. When the debt is sent or sold to a collections agency, that’s another mark and a new collections account appears on your report. If you continue not to pay and the collections agency wins a judgment against you, yet another negative mark is created. All these negative marks can remain on your credit report and negatively affect your credit for years to come.

  • Late payments remain on your credit report for seven years from the date of first delinquency. If you bring the account current, the series of missed payments will be deleted seven years from the date of the first missed payment.
  • Collections remain for seven years from the date of first default with the original lender, which in total may be seven-and-a-half years after your first missed payments.
  • Judgments remain on your credit report for seven years from the ruling, which could be years after the late payment.
  • Repossessions and foreclosures, charge-offs, and settlements remain for seven years from the date of first default.
  • Chapter 7, 11 and 12 bankruptcies remain for ten years from the filing date. Chapter 13 bankruptcies remain for seven years from the filing date.

These negative marks remain on your credit regardless of whether or not you settle the account. The date of first default cannot be changed by you, a lender or a collections agency.

4. What Is the Statute of Limitations for Debt?

Those who are worried about getting sued for their unpaid debt may look to the statute of limitations (SOL) for relief. States impose a SOL that dictates how long a lender or collections agency has to sue the borrower for the debt. The SOL usually ranges from three to ten years and varies by state and the type of debt. Which state’s laws apply to your loan can depend on where you lived when you took out the loan, where you live now, or what’s in the contract.

It’s important to note that even after the statute of limitations has passed and the debt becomes time-barred, you still owe the money. The lender, or a collections agency, can try to collect the money from you directly, even if they can’t get a judgment against you. In some cases, you might still be sued for time-barred debt, and you could lose if you don’t show up in court to present the SOL as a defense.

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5. Can You Reset the Statute of Limitations?

Those with an old debt are sometimes hesitant to make a payment or speak with a collections agency for fear of resetting the statute of limitations. In many states, the statute of limitations for some debts may reset if the borrower acknowledges the debt or makes a payment of any amount. This could be a reason not to engage with a debt collector.

On the other hand, it is a myth that speaking with a debt collector or making a payment resets the timer for the negative marks falling off your credit report. Those timelines have a particular start point and cannot be reset.

6. What Should You Do If You Can’t Make a Payment?

If you’re going to miss a payment, call the lender before you do so. Explain the situation and tell them when you can make a payment or how much you can afford to pay now. You can try to get late payment fees waived, although it’s a good idea not to make a habit of this.

When you can’t afford or choose not to make payments, the debt goes into default, followed by collections. Your options may change, but an open line of communication can still be critical. The collections agency may be willing to work out an alternative payment plan or settle the debt if you can pay a portion of the amount owed.


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