Missing a payment is like breaking a promise. The promise that you made when you applied for credit, to pay back an agreed amount an agreed number of times. 

Unlike other promises, however, there are no half measures or mulligans or get-out-of-jail-free cards. If you miss a payment, this will be recorded and kept on your credit record for a minimum of 2 years.

This is why it matters

A missed payment is a massive red flag to credit bureaus and lenders because it might be the first sign that you’re in financial distress. If that’s the case, then you might miss future payments as well. So, the red flags on your credit record are there as a warning to other lenders that you might have trouble meeting your payments in future.

This doesn’t mean that lenders will always decline your application, but they might apply a higher interest rate or other terms to try cover themselves in case you do have money trouble down the road. And in many cases, a single missed payment, even by a day, can trigger a red flag with the credit bureaus. Even though these bureaus operate independently, a missed payment will be registered with all of them very quickly by the offended lender.

This is what happens

A payment is considered missed if you haven’t paid the correct amount by the account due date or if you had insufficient funds to cover a monthly debit order. This date will be on your account statement and may have been negotiated with your lender. For instance, your credit card may be due the 25th of every month, but your personal loan only the 1st of each month to suit your cash flow.

If you see that you’re not able to make a payment, it’s always best to contact your lender to alert them

In either event, a missed payment will trigger an alert from the lender to the credit bureaus that you’ve missed a payment. The purpose of this is to warn anyone else that you may be a credit risk.

That red flag will also influence your credit score, which is a reflection of your creditworthiness. If you have a high score, then lenders will gladly lend to you at favourable rates because they can trust that you’ll pay your debts.

It’s impossible to say exactly how many points your credit score will drop when you miss a payment, because that depends your unique circumstances, but you can expect to see it fall substantially.

Does it help to make payment arrangements?

If you see that you’re not able to make a payment, it’s always best to contact your lender to alert them. This will almost certainly earn you some brownie points and understanding from your lender, but it won’t prevent the missed payment being reported to the credit bureaus. 

Making a payment arrangement is definitely in your best interest, especially because it gives the lender the hope that you’re committed to catching up on late payments. And it gives you some breathing room if you’re struggling to make ends meet.

The long-term goal will be to restore your credit score to its former health. This may take time, but it can be done if you’re committed and disciplined.