Does Paying Bills Late Really Hurt Your Credit?

It's a simple question: Does paying bills late really hurt your credit? The answer, however, is a little more complicated.

Which bills?

When banks look at your credit history to decide whether to loan you money, they're looking to see how well you handle the credit you already have. A history of on-time payments shows you're a reliable credit risk, while a history of late payments indicates that perhaps you're too risky.

Credit cards, loans, and mortgages are the big payments that really count. If you pay these late, it could very well hurt your credit. Bills like your electric or cable bill are less likely to have an impact on your credit, unless they go unpaid long enough to be reported to the credit bureaus (which can happen).

How late?

Pay your credit card bill one day after the due date, and you'll incur the late fee, but they probably won't report it to the credit bureaus. A few days late, or too many times, they might increase your interest rate (it was probably in your credit card's terms when you were approved for the card, detailing exactly when and how they would increase your interest rate for late payments). But if you pay it 30 days or later, there's a good chance it will be reported to the credit bureaus. Then it will show up on your credit report, where it will remain for the next seven years.

Is that enough to hurt your credit? It can drastically lower your credit score. But you can also explain it to a potential creditor or lender — often, a one-time late payment is due to a job loss, unplanned medical bill, or other financial emergency. Once you explain it, it will likely have less of an impact than it might have otherwise.

How often?

As previously mentioned, a single late payment isn't likely to have an enormously detrimental effect on your credit. Repeated late payments on the same bill, however, or having multiple bills that all have late payments can have a severe impact on your credit. It can even sabotage certain financial maneuvers, like selling your life insurance policy.

You can look for ways to avoid this problem, such as setting up automatic payments or setting money aside as a cushion. Save large chunks of money, such as tax refunds, and use the funds to pay bills when money is tight. Don't risk your credit with an unnecessary late payment.