Your credit report provides creditors with a glimpse into how you handle debt and manage your finances. While a spotless report is not possible for everyone, doing what you can to keep negative marks off of your report represents a key aspect of building a positive credit report.
Credit Reporting Basics
The Fair Credit Reporting Act sets the standard for the information credit reporting agencies can report when it comes to consumer histories. Allowable information includes details about your credit history, employment history and identifiable information, such as your name and address. Included on your credit report are a record of all current and past accounts, both open and closed, and the payment history associated with those accounts. Your credit report lists positive and negative accounts. Negative entries on a credit report can result from events including late payments, collections activity, bankruptcies and foreclosures.
Late Payments
While paying a bill one day late won't always be reflected on your credit report, you should get in the habit of paying all bills by the due date to ensure your creditor doesn't place a black mark on your credit report. Late payments typically result in a negative entry on your personal credit report. Each creditor maintains its own policy for reporting late payments. Some creditors report a late payment as soon as it occurs, while others wait the traditional 30-day period to report a late payment.
Cascading Effects
Late payment entries will lower your credit score, and if they occur on a regular basis they will hurt your ability to obtain additional credit. In addition, a late payment of even one day can allow your creditor to increase your interest rate and charge late fees. These consequences alone can have a negative impact on your overall debt-to-income ratio -- a calculation used to determine your ability to take on more credit.
Considerations
Speaking with your creditors and notifying them of a late payment, even a payment that will be one day late, improves the chances of your credit report escaping unscathed. In addition, reviewing your loan documents and credit card policies for late payment procedures provides specifics regarding a creditor's reporting habits. For instance, some creditors specifically note what day past due they will report an account as late to the credit bureaus.
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