Ontime payments are the main indicator of your creditworthiness, while late or missed payments show you as a risky borrower. And this facet of your credit history is so essential that the damage made once stays on your credit report for seven years.
Payment history and account statuses
The good news is that sometimes you may pay your card bills late without hurting your credit but not for two months in a raw. The bad news is that after being half a year late, your account may be sold to a collection agency and you may be sued. To draw a line between these situations, let’s have a look at credit card account statuses.
- Your account is current as long as you make minimum payments on time. It is easier to do if your credit card allows setting up Autopay and your own due date.
- The day you’ve missed a payment, the status of your account changes to past due. If it’s your first late payment in a row, you have 30 days to pay off your debt before it will be reported to the bureaus and decrease your credit score. Besides bad notes in your credit history, this status may bring you penalty fees and higher rates. And the more past due your account is, the greater its negative impact on your score. However, all you need to do to turn your account back to the current status is to pay off the accrued minimum payments.
- After 180 days of non-payment, the bank may close your account and sell it to a collection agency. Such account is reported to credit bureaus as charged-off, and this record stays on your credit report for seven years. After that there are several ways to mitigate the consequences for your credit:
- You can pay off the debt in full, and the status of your account will change to Charged-Off Paid (in very rare cases, you may even persuade collectors to remove the charge-off record from your credit report).
- You also may settle the debt paying it only partially according to your agreement with collectors. After that, the status of your account will turn to Charged-Off Settled.
Any of them looks better on your credit report than an unpaid charge-off. However, remember that paying off or settling your debt doesn’t improve your score. To rebuild your credit and raise your score, you should demonstrate your responsible credit management to credit bureaus. Look at our article on “How to recover from a charge-off” here.