The short answer is yes: skipping one car payment can hurt your credit score, but not until it hits a certain mark. One missed payment doesn’t destroy your credit score forever, but it can stay on your credit reports for years.
When Does A Late Payment Affect Credit Score
Once you miss the due date on your payment, it’s officially considered late. Following the missed payment, the creditor can assess a late fee. The good news is you can recover from a missed payment fairly quickly – as long as you make the payment before the next one is due, plus the late fee the following month. According to the Credit Reporting Resource Guide, your creditor can’t report any late car payments until it hits 30 days past due. If they do, it’s breaking the law.
You could think of the late fee as a “grace period” before it begins to hurt your credit score. But you shouldn’t take the situation lightly or get into the habit of missing multiple payments. It’s easy to lose track of time and money, and more missed payments will cause bigger hits to your credit score.
One or two missed payments may not be enough to completely ruin a good credit score, but they can lower your credit score quite a bit. How much your credit score can drop depends on many things, including how much credit history you have and how much time has passed since your missed payment.
How much a missed payment can impact your credit score is heavily influenced by how many missed payments you currently have reported, your current credit score, your credit utilization, how many accounts you have, and more. In other words: your drop in credit score due to one missed car payment is likely to be unique to you. The drop in points could be anywhere from 10 to 100 points, or more.
If you have a thin credit file or little to no credit history, one missed car payment can be devastating to your credit score. And, in some cases, having a good credit score and then a reported 30-day missed payment could hurt your credit score more because you have more to lose.
The severity of the missed payment matters too. If you’re 30 days on the payment, it’s not as bad as being 90 days late. Most creditors report missed payments in these timeframes: 30 days; 60 days; 90 days; 120 days; 150 days; and then delinquent/charge-offs after that. The longer you let that missed payment go on being missed, the worse it is for your credit score.
To bounce back from a missed auto loan payment, be sure to make that payment as quickly as you can. The sooner you make up that payment, the better off you are.
How Long Do Late Payments Stay on A Credit Report?
Missed and late car payments can remain on your credit reports for up to seven years. How much they damage your credit score lessens each year, but it can still impact your overall credit score years afterward.
Your payment history is the most influential part of your credit score: a whopping 35%. In terms of credit repair, this means making all of your bill payments on time is important. If you have an auto loan that isn’t currently being reported – meaning your loan and on-time payments don’t show up on your credit report – the missed and late payments are likely to be reported anyway. Even auto lenders that don’t generally report their loans to the credit bureaus typically report missed/late payments.
If you think you’re about to miss a payment and you want to avoid hurting your credit, you have some options to explore.
How to Prevent Late Car Payments
So, how do you make sure you never miss a car payment? There are many different strategies you can use that’ll not only help you keep up with your car payment but other monthly bills as well. Some tips are to:
- Choose your payment dates – If you’re able to choose a specific date to pay each month, it’s easier to remember one or two dates your bills are due.
- Set up reminders – Whether on your personal calendar or phone, setting up payment reminders is a great way to keep you on track. You may even be able to set up automatic bill pay online in some cases.
- Discuss payments with your lender – If you know you won’t be able to make the next month’s payment, talk to your lender. Your lender will appreciate you discussing your financial situation and asking for help. In some cases, they may allow you to skip a payment and add it to the end of the loan term.
Ask Your Lender for a Deferment
Lending institutions understand that times can get tough. If you think you’re about to miss a payment, contact your lender right away and ask what options are available to you. Keep your lender in the loop if you’re going through rough times – the sooner you get ahold of them the better.
This is especially true right now, given the current pandemic. Many borrowers left without work have been forced to find alternatives to making payments and needed assistance with their car loans and mortgages. There is a process that allows borrowers to take a breather and gather themselves, and it’s called a deferment.
A deferment, in a nutshell, pushes the pause button on your auto loan. Most times, lenders pause the car payments for up to three months and add those payments to the back of the loan term. If you qualify, you may be able to recenter yourself and get back on track. After the deferment is up, the car payments resume and you continue paying as normal.
The only downsides to this option are that your interest charges continue to accrue, and your loan term is extended. However, in the grand scheme of things, a few more months of a car payment and interest charges is better than default or multiple missed payments!
There is a common stumbling block to deferments though: most lenders don’t approve these plans unless you're current on the loan. If you’ve already missed one payment or more, then the lender isn’t likely to approve it.
The Quirks of Credit Scoring
Who's worse off? Person A, whose credit report contains one 30-day late payment from last month, or Person B, who has a pair of 90-day late payments from three years ago? It's reasonable to assume that the person whose payments were later and occurred more frequently will have a less favorable credit standing, right? Actually, in the crazy world of credit scoring, one recent derogatory mark can hurt your rating in a significant way.
In the above scenario, Person B would most likely be better off than Person A, at least in the eyes of creditors and lenders. A recent negative item happens to have a much greater impact on your score than older ones. It's just the way credit scoring works.
A good analogy is thinking of good credit as a marathon and bad credit as a sprint. Building a strong credit history is a long process. Bad credit can happen in the blink of an eye.
Whether caused by financial missteps, an unexpected job loss, divorce, or medical bills due to illness or injury, derogatory marks will let their impact be known once they hit your credit report.
A derogatory mark, or "black mark," is a long-lasting negative record on your credit report. Even just one can hinder your ability to obtain credit or get approved for a loan. Multiple ones will make you seem riskier in the eyes of lenders for years to come.
Missed payments are just a blemish compared to some of the more severe derogatory marks. Failing to meet your credit obligations can lead to:
- Defaulting on a loan
- Account(s) in collections
- Having debt settled or charged off
- Tax liens
- Civil judgments
- Short sales or deed-in-lieu of foreclosure
- Vehicle Repossession
Any time that your credit accounts are not paid as agreed, you can bet that the instance will make it onto your credit report. Finally, derogatory marks can remain on your file for as long as seven to ten years.
Remove Late Payments From a Credit Report
You basically have two options after a derogatory mark makes its way onto your credit report:
- Wait. All black marks come off your credit report with time. And that doesn't mean that you have to suffer from a poor credit rating for a decade. While your credit score may be hurting after the initial blow, there is no reason that you can't bounce back if you practice good credit and financial habits from now on. Mainly, that means making every payment on every account on time and keeping credit card utilization low. As time passes, the impact a negative event has on your credit rating will lessen. Meanwhile, your newfound good credit practices will help your score inch upward.
- Talk to Your Creditors. It is possible for a creditor to stop reporting the black mark before the normal time period has passed. How? Well, you ask nicely, basically. If you have since paid back all of your debts with them, it is possible that they will do you a favor. If you still owe them, arrange terms to repay your debt and make the removal of the derogatory mark part of the arrangement (get it in writing). It can be worth a shot if you have been practicing good credit ever since the mark appeared.
It's important to know that not all types of bad credit are treated equally in the eyes of lenders. If you can show that your credit issues stemmed from one unexpected life event, but have otherwise been a reliable borrower, many lenders are willing to take that into consideration.
For those looking to clean up their own credit reports but would like help, consider getting support from a reputable credit repair service company.
Is Refinancing Your Auto Loan an Option?
If you’re struggling to keep up with your current car loan, refinancing for a lower monthly payment could be the answer.
Refinancing involves replacing your current loan with another one, typically with a different lender. Most borrowers refinance to lower their monthly payments by either lowering their interest rate or extending their loan term (sometimes both).
To refinance, you also need to be current on your auto loan. Most lenders that offer refinancing don’t consider borrowers with multiple missed/late payments on their car loan. Additionally, you generally need to meet these requirements for refinancing:
- Must have equity in the car or the loan balance must be equal to the vehicle’s value
- The car is under 10 years old with fewer than 100,000 miles
- Your credit score has improved since the start of the loan
You may need to meet other requirements, depending on the lender you choose. Refinancing doesn’t typically require a “perfect” credit score, but you may need a good one to qualify.
Ready to Get a More Affordable Car?
If you’re struggling to make ends meet and worried about skipping payments, then it may be time to sell your car and get something more affordable. If you’re concerned that a poor credit score could get in the way of your next auto loan, then consider a subprime lender through a special finance dealership.
Subprime lenders are indirect lenders that are signed up with certain dealers. They assist borrowers in all sorts of unique credit circumstances, and they could help you get into a more affordable vehicle if you qualify.
Finding a subprime lender can be as simple as completing our free auto loan request form. Here at Auto Credit Express, we work to match borrowers to dealerships with bad credit lending resources in their local area, at no cost, and with no obligation. Get started today!