Missing a monthly payment is easily done, but whether you couldn’t afford to pay your energy bill or simply forgot when it was due, the impact on your credit can be significant.
The key to resolving a missed payment is to deal with it as soon as possible by contacting the creditor and explaining your circumstances or paying the money owed at a later date. Ignoring a missed payment can lead to further action, such as debt collection, bailiffs, and in extreme cases, a court judgment.
What counts as a missed payment?
When you take out a credit agreement (loan, mortgage, utility bill, phone contract etc.) you agree to pay back what you owe in a series of regular (usually monthly) payments. These dates are set in stone and agreed ahead of time.
However, it’s important to note that there is a difference between a late and a missed payment. For example, a late payment is a payment that’s made after the due date but before the billing cycle ends while a missed payment is a payment that remains unpaid after the billing cycle ends.
In most cases, the lender will contact you and ask why payment wasn’t made before the end of the billing cycle, which is typically 30 days or when the next payment is due. If you ignore their attempt to resolve the problem or don’t cooperate, they will likely take further action to recover the money they are owed.
How much debt do you have?
How long does a missed payment stay on credit file?
In the UK, a missed payment stays on your credit file for six years from the date it’s recorded. Even if make up for the missed payment at a later date, it will still appear on your credit report and be visible to lenders for the full six-year period.
This might sound daunting – especially if you’ve been working on building your credit score and simply forgot to pay on time – but the impact of a missed payment tends to matter less and less as time goes on.
This is because lenders tend to focus more on your recent credit history as opposed to something that happened five or six years ago.
How does a missed payment affect my credit score?
Unfortunately, any sort of negative marker on your credit report – intentional or not – will hurt your credit score for six years.
During this time, lenders will see you have a missed payment and use this information to decide whether to extend you credit. Because a missed payment indicates that you’ve failed to keep up with payments in the past, they might be less likely to enter into a new credit agreement with you.
However, missed payments have a different impact on each person’s credit score depending on the situation. For example, a payment that is 90 days late will likely harm your credit score more than a payment that is only 30 days late and multiple missed payments will have a bigger impact than just one missed payment.
As previously mentioned, a missed payment also has less of an impact on your credit score as time goes on. This means that, as long as you’re keeping up with your other accounts, the impact of the missed payment on your credit score should gradually decrease over time.
“No fuss, just simple, honest advice. Communication is good and they make the process as easy as they can.”
How to avoid missed payments
The key to minimising the impact of missed payments on your credit score is to avoid missed payments altogether. Here are some steps you can take to avoid missed payments:
Make a note of your payments
Whether you’re struggling to keep up with multiple monthly payments or just have trouble remembering when you’re supposed to pay, making a note of each due date can reduce the likelihood of you missing a payment.
Write each due date down on a piece of paper and put it in a place you visit often (e.g. on the fridge) or add them to the calendar on your phone and set an alarm to go off on the day to remind you when to pay.
From rent and utilities to credit cards and phone bills, having a complete picture of how much you owe and when can go a long way towards ensuring you never miss a payment again.
Set up automatic payments
The most fool-proof way to avoid missed payments is to set up automatic payments. This way, the only thing you need to do is ensure you have enough money in your account on the day your payments are due.
Having your payments leave your account automatically also increases the chances of you making payments in full and on time each month, which can help you build your credit score over time.
Create a budget
Many people find budgeting daunting. But when used right, it can be one of the most important tools in your financial toolbox. Start by making a note of your total income before subtracting your expenditure and making a plan for how you’ll ensure each expense is accounted for.
Budgeting can help you see at a glance what bills you need to pay, how much you owe, and when you should make payment. If you have little to no disposable income left after your essential costs, find ways to reduce your non-essential spending.
How can I improve my credit score after a missed payment?
The impact of a missed payment will gradually decrease over time, but there are still steps you can take to improve your credit score in the meantime. We’ve outlined what you can do to improve your credit score after a missed payment below:
Register to vote
When you register to vote, your address will be added to the electoral roll. Most lenders access the electoral roll to confirm your name and address and if they’re able to verify these details, they can rule out identity fraud and corroborate you are who you say you are.
This also means that, if you’re not registered to vote, there could be a delay in getting approved for credit. In some cases, your application might be turned down if the lender is unable to prove the name and address you’ve provided is correct.
Limit new credit applications
In the eyes of a lender, making too many credit applications within a short space of time suggests that you’re reliant on credit and are not in a position to take out a new credit agreement. Therefore, it’s advised to limit your credit applications after a missed payment to ensure you’re able to secure credit when you need it.
What’s more, each new credit application might create a hard inquiry on your credit file, which can temporarily lower your credit score.
Make timely repayments
The key to showing lenders that you’re a responsible borrower is to pay bills in full and on time. This proves that you’re capable of keeping up with a payment schedule for a prolonged period and can be trusted to make future payments as agreed.
Even if you have old credit accounts that you only use once a month (e.g. a credit card you use for small expenses), maintaining these over time can show you’re a reliable borrower and help you build a good credit score.
Check your credit report for errors
Getting a copy of your credit report and checking your free credit score can help you ensure all the information listed is accurate and up to date.
Many people are unaware how easy it can be for an error to occur on your credit file, but something as small as a misspelled surname or an old address can see your credit score drop by several points.
If you notice something that doesn’t look right, contact the relevant credit reference agency and ask them to update their record accordingly. They will likely ask for proof, such as a recent utility bill showing your current address or a bank statement showing you’ve repaid a debt.
Debt help tailored to you
From writing off a large portion of your debt, to readjusting your budget, we’ll find a solution that suits you.
Conclusion
When you miss a payment on a credit agreement, it will be added to your credit report for six years. During this time, lenders will be able to see you’ve missed a payment and will use this information to determine whether or not to extend you credit.
Having a missed payment on your credit report can harm your chances of being approved for credit at favourable terms. However, the impact of a missed payment will diminish over time as lenders tend to focus more on your most recent credit history and are unlikely to let a missed payment from six years ago influence their decision too much.
Taking steps to avoid missed payments altogether can help you avoid a damaged credit score. To do this, register to vote, limit new credit applications, make timely repayments, and check your credit report for errors.
