How Late and Partial Payments Affect Your Credit Score

Your $300 car payment is due on the fifteenth, but you only have $200 in your account. What’s the best way to solve the situation?

The answer: it depends.

Sending in a partial payment on time might seem better than nothing, but that’s not necessarily the case when it comes to your credit score. You could still be penalized, because some creditors treat a partial payment the same way they do a late payment. How late and partial payments are treated depends on what type of debt you’re dealing with, as well as on the lender. With that in mind, here’s a quick guide to what you should know about late and partial payments and how they could affect your credit score.

What’s the difference between late and partial payments?

First things first: a late payment is when you make a payment after the due date; a partial payment is when you pay only part of the bill. While credit cards have minimum payment amounts, which can vary depending on your balance, other types of debt such as car loans and mortgages typically have set payments that typically don’t vary as much. 

Like in many situations, when making a late or partial payment communication is key. If you ever see yourself falling short or behind on payments, contact the lender proactively to try to work out a solution. Some things you can try to arrange include: 

• Asking if you can make a partial payment. If you just send in a partial payment without any explanation, there’s a good chance you will be penalized. That means you could rack up late fees or other penalties.
  
• Asking to skip a payment or to change the due date. If you’ve been timely with your payments thus far, there’s a chance your lender will let you skip a payment or shift the payment date, giving you a little more breathing room.

How amenable lenders are to these alternative arrangements depends entirely on their policies. They may consider factors such as your credit history and the type of debt you’re dealing with.

Grace periods for different types of debt

Grace periods and consequences for late or partial payments vary depending on the type of loan. Here’s a quick look:

Mortgage Payment Grace Period

If you miss a mortgage payment for the first time, your lender may give you a grace period of 15 days. During that time, you can send in a payment without being considered delinquent.
 
After that, you’ll be subject to a late fee — usually from 2% to 5% of the monthly payment amount. If you miss a second mortgage payment, then your loan could be considered in default.

Car Loan Payment Grace Period

Grace periods for a car loan will vary depending on the lender, but most banks give a 10-day grace period before counting a payment as late. After that, you’ll likely incur a late fee. Depending on your lender’s policies, if you still haven’t paid by the time your next payment is due you may have defaulted on your car loan, which can result in your car being repossessed.

How do late or partial payments affect your credit score?

Late payments (or partial payments that are treated like late payments) can be reported to credit agencies 30 days after the payment due date. This does vary, since some lenders may not report late payments until 60 days past due.
 
Some companies, such as utility companies or mobile phone companies, may not report late payments at all, but your credit could still be affected. If you miss enough payments and your service is disconnected or you end up defaulting, companies could report the debt to a debt collection agency, who will then add your delinquency to your credit report.
 
Once a late or missed payment is reported to the credit agency, your credit score will take a hit. Late payments will typically lower your credit score by dozens of points and can stay on your credit report for seven years. Your credit score affects your ability to take on new credit, and it also affects your credit card interest rate. If you do find yourself in a bind, it’s best to be proactive about solutions. Reach out to your lender or consider a nonprofit debt-counseling organization. Also, if the late payment is a mistake, you can work with the credit bureau to have it removed.
 
Life happens, and sometimes you find yourself short on funds. Just keep in mind that reaching out proactively to your creditors and trying to work something out is likely to be more favorable than sending in a partial or late payment.