A ‘missed payment’ is when you don’t make a payment on the date agreed during a billing cycle (usually 30 days) to your lender. For example, you pay a credit card repayment on the 15th of each month, but you miss payment on that date.
It is not only missed payments on credit cards and loan repayments that are taken in account. Missed payments on gas, electricity and mobile phone contracts are also recorded with a Credit Reference Agencies (CRA).
Lenders will report missed payments to (CRA); the main three you may have already heard of are Experian, Equifax, and TransUnion.
Missed payments will appear on credit reports and repeated instances of missed payments can reduce your credit score.
Therefore, missed payments can impact your future ability to borrow. This is because almost all lenders will check an applicant’s credit report. One of the most important factors lenders consider is an applicant’s payment history.
If you have many instances of missed payments or defaults, then a lender will likely deem you ’high risk’ and decline a loan, or charge a high rate of interest.
What happens if you miss a payment?
If you miss one payment, credit reports will consider this ‘early delinquency.’ One missed payment does not mean your account defaults. There are a number of steps before any account will be considered in default. But this is not a reason to be ‘lax’ with your repayments, because two missed payments are worse than one.
What is delinquency?
An account is considered ‘delinquent’ once you miss a payment. For example, if your payment is due on the 15th of each month but you don’t pay until the 20th, your account is considered delinquent in the interim. Lenders don’t typically report delinquency or missed payments to CRA’s immediately. They often provide a ‘grace period’ to make the repayment in full. A grace period is typically around 14 days.
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.
What do missed payments look like?
Missed payments are shown on credit reports as a single digit.
‘1’ means you’ve missed one payment and ‘5’ means you’ve missed 5 consecutive payments.
If you miss 6 consecutive repayments, the lender may record a default against you. Defaults are more serious and remain on your file for six years. Often a lender will automatically decline an application if there has been a default.
When a lender considers your loan application, they will see the current status of your account. Assessment will differ between lenders. However there is the possibility that a recent ‘1’ missed payment mean your application is declined. So even though it’s a first missed payment, 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.
What can you do about a missed payment?
If you miss a payment either by mistake or due to financial difficulty, you should contact your lender as soon as possible. They may be able to advise and offer alternative solutions. Such as agreeing to give you more time to make the payment.
If you are experiencing financial difficulty, it is best to be honest with your lender. They may be able to agree to a repayment plan that suits you. Additionally you can contact free debt advice services such as StepChange or Citizen’s Advice for further support.
If your credit report has been impacted by missed payments, you can work on other aspects of your credit profile. This includes ensuring you are on the electoral register and checking your report for mistakes.