credit
February 8, 2024
Whether your rent is due on the 1st, 5th, or some other day, paying it on time matters. Housing may be one of the most important expenses you have as a consumer, but what happens if you don’t have enough cash to make it work?
Paying rent late isn’t ideal, so here’s what you can expect if it happens, along with how it affects your credit score.
What Happens If I Miss a Rent Payment?
Your lease agreement is a legal contract that detailsthe consequences of a late payment. It defines when a payment is consideredlate and what fees are applied for late payments. It may also include a graceperiod or the amount of time you have between when your rent is technically dueand when your landlord will take a negative action.
Waiting too long to pay your rent could put you past any grace period and even put you in danger of breaking your lease – something that could eventually end up with an eviction process against you. It’s important to read our lease carefully before paying rent late so you won’t be surprised by your landlord’s response.
Does Paying Rent Late Affect Your Credit Score?
In addition to possible fines and legal action, your landlord may report your late payment to a credit agency. This isn’t always the case, however. Not all landlords report your payment to a credit bureau.
You could also find the late amount gets sent to collections[1].If this happens, you typically won’t be able to resolve it with your landlord directly and will need to work with a collection agency to get the payment and any late fees taken care of. Note that in many cases, a rent payment in collections will show up on your credit report and can affect your score.
Negative credit report activity can stay on the report for up to seven years in most cases.
Do Landlords Report Late Payments
You may be wondering if your landlord even reports to the credit bureaus. In many cases, they won't, but this can change if you start making late payments. In fact, there are services out there to help you build credit by making it easy for landlords to report your on-time payments. When paid promptly, these services can help you raise your credit score.
If the same landlord finds that you are late with a payment, this same service can cause a negative mark on your score. It’s a double-edged sword, so to speak.
So, whether your landlord reports a late payment greatly depends on their own policies. Ask to be sure, but don’t take their lack of reporting for granted. It can change at any time.
How to Find Out if Your Rent Payments Are Being Reported
The best way to know if on-time or late payments (or both) get reported is to simply ask. You may want to do this early in the business relationship before you make a late payment. Finding out can help you plan how your leasing activity affects your credit report over time.
You may also find these details in your lease agreement. If you were ever asked for your Social Security Number and credit details in advance of signing your lease, it’s likely you can be reported.
Finally, a quick look at yourfree annual credit report[2]should show you any reports from your landlord. If there's nothing there, they likely don't report it. This doesn't mean they won't start if you begin making late payments, however.
Long-Term Consequences of Rental History on Credit Reports
Any late payments on a credit report can lower your overall credit score. A FICO® score, for example, uses payment history for 35% of the score value[3]. This is the largest portion of a score model, so even a late payment or two can affect your credit rating.
Some landlords will run your credit before ever leasing to you. If you want to change apartments down the road, having a healthy score can keep the most opportunities open for you. Paying late at your current home may prevent you from an ideal future home.
What To Do If You've Paid Your Rent Late?
Ideally, you won’t pay rent late, but if you’ve alreadydone it, take action right away. Go to your landlord and talk to them. Explainthe situation and let them know that you don’t intend for it to happen again.Ask what you can do to avoid a late fee or bad mark on your credit report. Thesooner you take responsibility, the more likely they will be to show somegrace.
The Bottom Line on Late Rent
Rent payments should be taken seriously because they affect your relationship with your landlord – and housing is very important. However, if you find yourself unable to make a rent payment on time, it's best to communicate with your landlord ahead of time to see what your options are.
In some cases, a payment that’s just a few days late won’t be a problem; payments that are 30 days late or more are likely to affect your credit score. If you do see a negative report from a late payment, getting back on track with regular, on-time payments can help bring it back into order.
Likewise, if you’re really good about paying your rent on time, it might be worth asking if your payments can be reported to a credit bureau. Not only do these on-time payments show future landlords you can be trusted to pay on time, but they also set you up for a possibly better mortgage on a house in Valpo, Indy, or anywhere in Indiana down the line.
Looking for additional tips for making your money work for you? Our money management tools help you plan, save, and spend wisely so you can have access to the right financial products for your Indiana lifestyle.
Sources:
[1]https://www.experian.com/blogs/ask-experian/what-type-of-debt-can-go-to-collections/
[2] https://www.annualcreditreport.com/
[3] https://www.experian.com/blogs/ask-experian/fico-score-what-it-is-and-why-its-important/
