A missed payment, even on a small balance, will hurt your score. But a tiny delinquency won’t hurt as much as a big one, and it has less impact if you have an extensive positive credit history.
Steve Bucci has been helping people decode and master personal finance issues for more than 20 years. He is the author of “Credit Management Kit For Dummies,” “Credit Repair Kit For Dummies,” “Barnes and Noble Debt Management,” co-author of “Managing Your Money All-In-One For Dummies” and “Debt Repair Kit For Dummies” (Australia). Steve is an experienced expert witness in identity theft, credit scoring and debt related cases. He has been a presenter at the FICO InterACT Global Conference, the Federal Reserve and the International Credit Symposium at Cambridge University in the UK.
Will my unpaid $2 card balance hurt my credit score?
A missed payment will hurt your score, even if it’s a small balance. But a tiny delinquency won’t hurt as much as a big one, and it has even less impact if you have an extensive positive credit history. What’s more, any negative impact should fade over time.
Dear Keeping Score,
I paid off my Jared card in September. The amount was something like $2,754.83. That’s not exact, but the point is that I paid an odd amount down to the penny. I found out yesterday that apparently something rolled over that same day and for the last four months the account has had a $2 balance. As soon as I found out, I called them and paid off the balance, including all late fees.
Would they report such a small amount that was obviously an honest mistake to the credit bureau? And if so, what can I do to remove that? As of now, it isn’t showing on my credit report. –Emily
I have some good news for you. Also, your story allows me to offer some valuable cautionary advice for my readers.
Even if the Jared people decide to report the $2 late item to the bureaus, it won’t much matter. The elves at FICO tell me that in credit scoring size does matter! Although delinquency is considered a negative scoring event, the FICO score looks at how much is still owed on delinquent accounts. In your case, this was $2. All else being equal, a currently delinquent account with a small outstanding balance will have a smaller impact on your score than an account with a whopper of a balance.
If you have an extensive positive credit history this minor peccadillo will probably end up being just so much background noise. If you have a thin or lightly populated credit history, it will have a larger effect, but it still shouldn’t be a major event. You might expect a small drop to your current score as a result of a late payment.
See related: How leaving a tiny card balance each month affects credit score
Any impact will lessen over time as new and positive information is added to your credit report and as the date of the negative item becomes more distant. As long as this is a one-time event I wouldn’t worry about it. Just don’t miss another payment if you can help it. Multiple delinquencies are much more damaging to your score.
Your payment history counts for roughly 35 percent of your credit score. I suggest you be extra cautious and review all your credit card statements every month, whether you have used them or not. This will alert you to any potential identity theft issues early in the game.
You may be able to check on any score damage for free if your lender is part of the FICO Open Access program. This free program was designed to help consumers better understand and use FICO scores. More than 170 financial institutions give their customers access to your score, along with the top factors affecting them, for free.
A word of caution about trailing interest
A word of caution to my readers: Just like Emily, you can run afoul of a nasty practice called trailing interest. Trailing interest is defined as “the amount of interest that accrues between when a credit card bill is sent, and when payment is received. Also called “residual interest,” it applies only when you carry a balance on your credit card.”
Be sure to check your account again after you make what you thought was a final payment. I suggest you do this a few days after you made your final payment, if for no other reason than to be sure the payment has been received. If you do that and look at your transaction history, you will see any balance and be able to take care of it immediately.
You can avoid paying late fees, at the very least. This is also why it is always a good idea to check on all of your accounts on a monthly basis. And anytime you pay an account off, you need to check after the statement period begins to be sure you don’t still have a balance.
Emily, while I generally agree with consumer advocates that trailing interest is unfair, the good news is you found out before it cost you too much money and corrected the problem. I am sorry you had to pay late fees, but you can file that under “cheap lessons learned” and move on.
Remember to keep track of your score!