What is the impact of late payments on credit?

Late payments can significantly lower credit scores and increase borrowing costs due to the way credit scoring models evaluate payment history. Payment history comprises a large portion of most credit scoring algorithms, typically around 35%. When a payment is made past the due date, it is reported to credit bureaus, negatively impacting the individual’s credit score.

This negative impact can vary depending on how late the payment is. Payments that are only a few days late might not impact the credit score as harshly, but those that are reported as late (usually after 30 days) can lead to marked decreases in creditworthiness. Additionally, lower credit scores often result in higher loan interest rates and fees, increasing the overall cost of borrowing. This compounding effect makes late payments particularly detrimental to an individual's financial health over time, underscoring the importance of timely payments.