How much missing a single payment can ultimately cost you
What happens if you're late to a payment, or miss one entirely, and how long you have to fix it before the cost start piling up.
Prices are rising faster than wages, and that means more and more people are at risk of falling behind with payments.
Last month alone some 2.3 million people missed at least one payment on their credit cards, loans, mortgage or rent, figures from Which? show, that’s 400,000 more people than in December.
And missing a bill - be it a simple mistake or because there’s no money left to pay it - could cost you hundreds of pounds, as well as following you around making your life more expensive for years to come.
But not every time.
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So I’ve missed a bill - what’s the worst that could happen?
There are three basic consequences to missing a payment:
A fee - typically £12 for a credit card, but it can be far more for a mortgage
Loss of your privileges - for example if you have a 0% credit card deal, that could be invalidated
A hit on your credit report - a missed payment can knock 100 points or more from your credit score
What will this cost? Well you lost a two-year 0% balance transfer deal, with £2,000 of debt, that’s £485 extra in interest at a typical APR of 23%.
The record of your missed payment sits on your credit report for six whole years after it happened - dragging your score down for that.
The difference in borrowing costs for people with a good credit score against a poor one can be as much as £773.04 a year on a £3,000 loan, research from MoneyComms for TotallyMoney found.
Worse, a hit to your credit score might see you blocked from a mortgage or car finance deal entirely.
Of course, that’s the worst case scenario - and if you act quickly there are things you can do to lessen them.
How to cushion the blow of a missed payment
The good news is that there’s plenty you can do to stop a simple slip turning into a financial death spiral.
The first thing to do is pay up as soon as possible.
A late payment is seen as a lot better than a missed one - and if you’re lucky it won’t even be recorded on your credit report.
That’s because several providers offer a “grace period” before they tell credit reference agencies you’re behind on your bill.
This is what Barclaycard has to say about it, for example: “As long as you were up to date last month, and you can get your payment to us within 14 days of the payment due date (which counts as day one), your credit file won't be affected.”
You’ll still get hit with the late payment fee, but that’s where the matter ends.
If you aren’t able to pay up within the grace period, or your provider doesn’t offer one, your next step is the credit reference agencies.
As credit rating agency Experian explains: “If there’s a good reason why you were late with a payment, such as redundancy, you can explain it to companies by asking us to add a notice of correction to your report. This can be up to 200 words.”
Future lenders are required to look at your explanation when making decisions, rather than simply go from your score - and there’s good news from Experian here too.
“If a late payment is recorded on your report, it will stay there for six years. However, its impact on your score will reduce as the record ages,” Experian said.
There are also plenty of things you can do to boost your credit score.
Credit scores explained
Everything you need to know about credit scores in the UK - from how to check yours, how to improve it, what to do if you have a CCJ and how long it stays on your report.
What if I can’t afford to pay?
If you’ve missed a payment and can’t afford to make up for it, it’s time to talk to your lender.
While ignoring the problem might seem easier - it will only see fees and interest grow while your credit score falls.
Speaking to your lender, by contrast, can see them find a solution that gets round all of these problems.
And if you find yourself still struggling, there are people out there that can offer independent and free debt advice.
StepChange, National Debtline and Citizens Advice can all not just talk you through what’s going on without judging you, but are also able to help you access the government’s Breathing Space debt respite scheme.
This offers up to 60 days protection for people living in England and Wales, during which no interest or charges can be added to your debts and no enforcement action can be taken against you while you get your finances in order.