Missed payments are when you’ve not made a repayment due under a credit agreement. For example – not paying that month’s credit card repayment. These are reported to a Credit Reference Agency (CRA). In addition to loans and credit cards, credit accounts reported include gas, electricity and mobile phone contracts.
A repayment is marked as missed at the CRA after a 14 day ‘grace period’.
Missed payments are shown as a single digit.
So ‘1’ means you’ve missed one payment and ‘5’ means you’ve missed 5 consecutive payments.
If you don’t make six payments or more, the lender may record a default against you. The default will remain on your file for six years.
When a lender considers your loan application, they will see the current status of your account. A recent ‘1’ missed payment might mean your application will be declined. Some lenders may interpret this as you being in financial difficulty, right now.
Additionally, the worse status for the last 12, 24 and 36 months is often displayed to a lender checking your credit file. Consequently, even if you’ve paid off a previous missed payment, your credit file will state if you missed any repayments over the last three years.
Why are missed payments important?
One or two payments not being made might not be too serious. These are referred to as ‘early delinquency’. However, even forgetting to make one payment reduces your credit score. If you have three missed payments, lenders often consider this to be ‘sustained delinquency’. Unless this happened some time ago, it is likely to lead to a rejection of your application.
When you’ve reached between three and six missed payments, you may be declared in default.
Defaults are more serious. Often a lender will automatically decline an application if there has been a default.