Why missing a payment could cost you dear

More than one in six Britons – or about 8million people – missed a bill payment of some kind in the last 12 months, according to research from MoneySupermarket.

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Of those, some 3million missed a credit card payment, while another 1.9million or so paid their council tax after the due date.

Mobile phone bills and personal loan payments were also missed by well over a million consumers at some point during the past year.

However, missing payments like this – even once – can have a detrimental impact on your credit score, which can mean that the best mortgages, credit cards and loans are no longer available to you.

Kevin Mountford, MoneySupermarket’s head of banking said: "Our research shows there's still a worrying amount of Brits potentially damaging their credit rating by failing to pay their bills on time.”

How do missed payments affect my finances?

Lenders look at your credit score when deciding whether or not to accept you as a customer.

If you want to have a chance of being accepted for competitive mortgages, credit cards and loan deals, it is therefore vital to ensure that your credit score is as high as possible.

Missing payments is bad news for anyone who may need to borrow in the future, said Kevin Mountford: "Missing a payment could have a significant knock-on effect for future applications for products such as credit cards and mortgages.

“Those applying for a credit card, for example, need to prove they can make regular and stable payments and any black marks against a credit profile would hinder chances of being approved.”

Your credit score is not the only aspect of your finances that you risk damaging, though. If you miss a credit card payment, there may also be more immediate effects.

Mountford said: “A late or missed payment on a credit card bill not only impacts your credit profile, but will also lead to the loss of promotional rates on the card, which can be a costly mistake.

“For example, missing your first payment on a 12-month, 0% credit card deal would cost an additional £300 in interest over the 12 months if you were moved on to an average credit card rate of 17.29% as a result.”

The good news, however, is that, while repayments on credit cards and other financial transactions such as mortgages and use of overdraft facilities are all recorded on your credit file, the majority of household bills (with the notable exception of contract mobile phone payments) and government-related fines are not.

How can I avoid missing payments?

Nobody is perfect, and everyone makes the odd mistake. However, it is vital to stay on top of all your payments if you want to maintain a good credit score.

“Prioritising your monthly obligations and setting up a direct debit for the most vital bills is a must for those who tend to forget to pay on their deadline,” said Kevin Mountford.

Fortunately, there are tricks you can use to help with this. When paying credit card bills, for example, the safest way to ensure that you always pay on time is to set up a direct debit to repay preferably the full amount each month.

You could also set up an alert on your mobile phone to remind you when large payments such as your mortgage are due to come out of your account.

If you are really struggling to keep up with your minimum payments, it is also worth knowing that changing your repayment schedule is less damaging to your credit score than defaulting – or missing several payments in a row.

You should therefore contact your lender about this as soon as you realise you will be unable to meet your commitments.

Otherwise, you risk receiving a County Court Judgment (CCJ), which will be entered on the Register of County Court Judgments.

This will have a very negative impact on your credit score, to the extent that it will be very unlikely for you to qualify for any form of regular credit or finance – other than that aimed at sub-prime borrowers which is much more expensive – for at least six years.

I have missed payments in the past. How can I improve my credit score?

If you have made mistakes in the past, the best way to rebuild your credit score is to keep a close eye on your existing accounts to ensure that you never miss a payment or go over your credit limit.

As rejected applications for credit cards and loans have an adverse effect on your file, it is also a good idea to only apply for deals that you are confident you will qualify for.

To help you with this, MoneySupermarket has SmartSearch credit-profiling tool that matches applicants with the most suitable products based on their individual credit score, but does so without leaving a footprint on the applicant's file.

You can read more about how to improve your credit rating in Jessica Bown's article 'Five ways to boost your credit score.'

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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