When you are late paying a debt, this delinquency may be reported to the credit reporting bureaus that are responsible for putting together your credit report. This credit report provides the basis for your credit score. The effects of a delinquency can, therefore, be severe, as this may cause your credit score to drop, which can lead to you paying more in interest on loans, including large loans such as mortgages.
Credit Score
Your credit score reflects your creditworthiness, as measured by whether you have paid back your loans in the past. When you pay back your loans, your score goes up. When you get a charge-off or a delinquency, then your score goes down. Lenders will often use this score when computing how much interest they will charge you when you take out a loan. So, paying bills late can cost you money.
Delinquencies
According to Yahoo! Finance, the amount that a person's credit score will drop after he is late paying a bill will depend on what the person's current score is. For example, if your score is 780, a notice that one of your debts is 30 days late will result in a drop between 90 and 110 points. If your score is 680, that same delinquency will drop your score between 60 and 80 points.
Time Line
While you may see your score drop severely immediately after you are late paying off a debt, your score likely will not stay down, so long as you pay your debts on time. When you pay off your debts on time, then older late debts recede in importance to the score. In addition, if you pay off a recent late debt, then your score will rise.
Considerations
Not all delinquencies or charge-offs are reported to credit reporting bureaus. Therefore, you may not see your score drop simply because you did not pay off a debt. In addition, all delinquencies and charge-offs can remain on your credit report for a maximum of seven years, so long as there is no change in their status -- meaning that they can only drag down the person's score for this period of time.
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