Late on Payments Vs. Filing Bankruptcy

Late payments diminish your credit score.

Late payments diminish your credit score.

A bankruptcy does more damage to your credit than late payments. If you are late making payments, you can always make a catch-up payment or come to a payment agreement with the lender. A bankruptcy, on the other hand, is final in that a court discharges your debt, which relieves you from having to pay the money back. Therefore, in the eyes of a lender, late payments are preferable to bankruptcy -- and they may do less damage to your credit score as well.

Late Payments

A lender begins reporting late payments to the credit bureaus after 30 days. Late payments appear in 30 day intervals on your credit report. For example, if you have not made any payments in 92 days, that fact appears on your credit as a delinquency of "90+ days." Making a payment even if it is the minimum payment due after you've fallen behind shows a willingness to honor your debt.


You have an option of filing for bankruptcy protection if you can no longer afford to pay your debts. However, filing bankruptcy comes with a price. On the one hand, a successful Chapter 7 bankruptcy petition discharges your debts, which means that you no longer have to pay creditors. Essentially, the process forces lenders to forgive the debt, and no lender likes to lose money. As such, a bankruptcy severely hampers your ability to borrow money -- even more than a record of making some late payments.

FICO Score

Your credit report tracks your financial history -- this includes your work history, places you've lived, court actions and information about organizations that have loaned you money. Your FICO score is the number that reflects your creditworthiness, ranging from 300 to 850. A credit score of 700 or above means that you have good credit, whereas a credit score below 500 signifies poor credit. Lenders reward borrowers with high credit scores by extending them credit, often with favorable interest rate terms. Borrowers with low credit scores can expect to pay higher interest rates or be denied altogether.

Credit Impact

Payment history accounts for 35 percent of your credit score. Late payments appear on your credit report for seven years. Bankruptcy stays on your credit report for up to 10 years. How much a bankruptcy affects your credit score depends on your credit profile. For example, a person with good credit that had to file for bankruptcy will experience a greater drop in her FICO score than a person who already had a low score.


Creditors are in the business of lending money to make money. If you are proactive and stay in touch with your creditors, it's possible they will allow you make new payment arrangements. Depending on your circumstances, the creditor may offer you a settlement agreement. A creditor wants to avoid the possibility of having its debt discharged in bankruptcy -- creditors would rather have late payments than no payments. If, however, you have no other choice but to file for bankruptcy, you'll have to slowly reestablish your damaged credit.


About the Author

Randolf Saint-Leger began his professional writing career as a junior research analyst. His writings have appeared in various online publications as well as "First Call," a leading news source for professional fund managers. Saint-Leger holds a Master of Business Administration in finance and international business from Pace University.

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