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Late payments generally only make it onto your credit report if they’re late for more than 30 days. Once a payment is late for 30 days, the creditor will likely report it to the credit bureau, where it will stay for seven years from the date of the first delinquent payment.

Because late payments can have a negative impact on your credit score, it’s best to avoid them when possible. Here’s what you need to know about this important topic.

What Is Considered a Late Payment?

Most accounts have a grace period after the due date where the lender will accept payment without any penalty. The exact length of a grace period will depend on the terms of your credit card or other account, but 21 days is common.

After the grace period, your lender may charge a late fee or make other changes to your account. Once your account is 30 days or more past due, your lender will typically report it to the major credit bureaus.

When Do Late Payments Fall Off a Credit Report?

In most cases, it will take seven years for a late payment to fall off a credit report. Even if you bring your account current after the late payment has already been reported to the credit bureaus, it will still show up on your credit report for seven years after the first late payment. This is why one of the top credit card rules is to make payments on time whenever possible.

One exception to this can be paid medical debt and medical debt under $500, but guidelines are in flux, so it can be worthwhile to do your own research on this topic.

How Different Credit Bureaus Handle Late Payments

Each credit bureau has its own proprietary way of analyzing your information and calculating your credit score. A late payment could have a more significant impact on one score than on another. For example, the VantageScore vs. FICOScore currently gives a bit more weight to payment history. This is one reason why your credit score may vary among the different bureaus, and why your VantageScore could be lower than the digits provided by FICO®.

Recommended: When Are Credit Card Payments Due

How Late Payments Affect Your Credit Score

One of the consequences of a credit card late payment is that it will have a negative impact on your credit score.

Your past payment history is one of the biggest factors in what affects your credit score. As such, if you have a significant amount of late payments on your credit report, it will be tough to have an outstanding credit score.

Short-Term vs Long-Term Credit Score Impact

Late payments can impact your credit score in both the short and long term. Short-term consequences can include late fees and potentially increased interest rates from your lender. Long-term impacts of late payments could be a drop in your credit score, difficulty getting loans or credit, and even having the amount you owe turned over to debt collection.

How to Remove Late Payments From a Credit Report

It’s difficult if not impossible to remove a late payment from your credit report — unless it was reported in error.

However, the only way to find out if a late payment is reported in error is if you regularly review your credit report. If you have documentation that shows that you made the payment on time, you can contact the credit bureau and ask them to update your credit score and credit report.

What Are Acceptable Reasons for Late Payments on Your Credit Report?

To qualify as an acceptable reason for a late payment on a credit report, there usually must be unforeseen circumstances beyond your control, such as medical emergencies, job loss, or natural disasters. Administrative errors by the creditor can also sometimes be a valid excuse. Some creditors may also consider billing disputes or legitimate errors as acceptable reasons. You may be able to manage the impact of these kinds of late payments and fend off a credit score drop.

Goodwill Adjustment Letters

If any of the scenarios above apply to you and your credit report, you might write a goodwill adjustment letter. In this kind of letter, which may also be referred to as a late payment removal letter, you request that a creditor who reported your late payment(s) remove this entry from your credit reports. While not guaranteed to work, it could play a role in helping you get rid of the mark that is negatively affecting your credit.

Requesting a Pay-for-Delete Agreement

Another option if you have a late payment on your credit report is to negotiate with the creditor or collection agency. In this case, you are contacting the party you owe money to (usually in writing) and offering to pay a sum to settle the debt and have the negative mark completely removed from your credit report. Again, this method is not guaranteed to work, and there can be legal facets to it, which can add to the complexity of this undertaking.

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What Can You Do to Minimize the Impact of a Late Payment?

Say a late payment pops up on your credit report. Maybe you got busy with work and your family or ran short on cash. Whatever the case, if you’re willing to do the legwork, there are a couple steps you can take that could potentially minimize the impacts of a late payment.

Negotiate

One option you have for minimizing the impact of a late payment is to negotiate with your credit card issuer. This will generally be more effective if it’s only been a short time since your payment was due or if you have not had late payments previously.

For example, your lender may be willing to waive any late fees or penalty interest if you enroll in autopay from your checking account and/or pay any past-due balance. Contact customer service, and see what can be worked out.

Dispute Errors on Your Credit Reports

If it’s been more than 30 days and your lender has already reported the late fee to the credit bureaus, it can be difficult to remove it from your credit report. However, if you have documentation that you made the payment on time, you can contact the credit bureaus to have them update and correct your credit report.

This is why it is important to understand how checking your credit score affects your rating — generally when you are reviewing your own credit report, it does not impact your credit score. Regularly reviewing your credit report for errors and discrepancies is a great financial habit to have.

Catch Up on Payments as Soon as Possible

Another smart move is to address late payments ASAP. This should be a priority to protect your credit score. Many people have moments when they miss paying a bill on time, such as when on vacation or waiting for a payment for a gig job. Stay on top of payment due dates (see below) and, if and when one happens, do your best to take care of it immediately.

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Guide to Avoiding Late Payments

Since it is difficult if not impossible to remove late payments from your credit report once they’re there, the best course of action is to avoid late payments in the first place. Here are a few tips on some of the best ways to avoid late payments.

Set Up Autopay

One great way to avoid late payments is to set up autopay from a checking or savings account. You can customize your autopay payments to cover the minimum amount, the full statement balance, or anywhere in between. You’ll just want to make sure you have enough funds in the attached account to cover the balance.

Set Payment Reminders

If you can’t or don’t want to set up autopay on your accounts, another option is to set up payment reminders. That way, you can get an email or text message a few days before your payment is due. Getting a reminder can help you remember to make the payment on or before its due date.

Change Your Payment Due Date

Sometimes the due date for a particular loan or credit card doesn’t line up conveniently with when you have the money to pay it. You might find that your credit card due date always seems to come a day or two before payday. If that’s the case, many lenders allow you to change your payment due date to one that’s more convenient for you.

Consider a Backup Payment Method

Another way to make sure bills get paid on time is to use a backup payment method. This is typically applicable for bills you pay online or in app, including those you pay on a recurring basis, say with autopay. You can usually go to your account settings or billing management section of a platform you’re using, and add, say, a credit card or bank account to serve as a secondary source of funding should the first one be inadequate.

The Takeaway

Paying your credit card and other debts on time can be one of the best ways to positively impact your credit score. Late payments can be reported to the credit bureaus as soon as 30 days after the due date. Once they’re on your credit report, they will stay there for seven years from the date of the first late payment. Consider your bank’s capabilities when avoiding late payments: The ability to set up autopay, have overdraft protection, and other features can play a role in avoiding this issue as well.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Can I get late payments removed from my credit report?

Typically, once they’ve been reported to the credit bureaus, you can only get late payments removed if you didn’t actually pay late. If you have documentation that shows that you made the payment on time, you can submit that to each credit bureau and ask that they update your credit score. You might be able to negotiate with a creditor to remove a negative mark, but this is not guaranteed to work.

Is it true that after 7 years your credit is clear?

How long missed payments and late payments stay on your credit report is usually seven years. That means that if you have not had any negative marks or late payments for seven years, you’ll be starting with a fresh slate.

Is payment history a big factor in your credit score?

Yes, payment history is a big factor in how your credit score is determined. While each credit bureau calculates your credit score differently, payment history is typically listed as one of the biggest factors in what affects your credit score.

How many points does a late payment affect your credit score?

There is not a single set amount that your credit score will drop if you have a late payment. Factors include your current credit profile and how late you are with your payment. For instance, being a day or two late is likely to ding your score less than being a few weeks late or missing the payment completely.

Can one late payment stop me from getting a loan?

One late payment could have a negative effect on your loan approval in some cases. Your payment history is the single biggest factor for determining your credit score, and if your score were considered borderline, a late payment could push you into a lower category. That lower credit score range might change the lender’s perspective on your creditworthiness. That said, a late payment is more likely to be a red flag than a dealbreaker.

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SOBNK-Q225-106

A covered call ETF is an exchange-traded fund that generates potential income by writing call options on the securities the ETF holds. These actively-managed ETFs give investors the opportunity to benefit from covered call writing without having to participate in the options market directly.

Covered call ETFs allow investors to earn income in the form of options contract premiums, in addition to any other dividends, and potentially reduce portfolio volatility. One trade-off is that upside potential may be limited if call options are exercised — typically when the underlying security reaches the strike price — which could result in shares being called away from the fund.

Basics of the Covered Call Strategy

Covered calls involve buying shares of a stock and then writing call options contracts on some of those shares. A covered call is also a type of “call writing” or “writing a call option” on a security.

Other investors can then purchase the call option contract. They pay a set fee to the call writer, known as the option’s premium, for doing so. The contract gives a buyer of the option the right, but not the obligation, to buy shares at a specific price on or before a specified date (known as the expiration date).

In the case of call options, when the share price of the underlying security rises above the strike price, an option holder can choose to exercise the option, at which point the stock may be called away from the shareholder who wrote the call option.

The option holder receives shares at a cost lower than the market value. Their profits may equal the difference between the option strike price and where the stock is currently trading minus the premium paid. The higher the stock price rises before the expiry date, the greater the potential profit for the person holding the call option.

Because the writer of the covered call option receives income on the deal in the form of a premium, they typically want the stock price to stay flat, fall, or rise only slightly. If the stock rises beyond the strike price of the option, then they’ll receive the premium, but their shares may be called away. The option writer could have a gain or loss depending on the difference between the option’s exercise price and the purchase price of the stock and the premium received.

On the other hand, if the stock doesn’t reach the strike price of the option, then the writer keeps both the premium and the shares. They’re then able to repeat the process depending on market conditions.


💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

What Is a Covered Call ETF?

A covered call ETF is an actively-managed exchange-traded fund (ETF) that buys a set of stocks and writes call options on them — engaging in the call-writing process with the goal of generating income through option premiums.

By investing in a covered call ETF, investors have the opportunity to gain exposure to covered calls without directly participating in options trading on their own. The fund takes care of the covered calls for them.

The ETF covered call strategy usually involves writing short-term (under two-month expiry) calls that are out-of-the-money (OTM), meaning the security’s price is below a call option’s strike price. Using shorter-term options enables the strategy to try to benefit from rapid time decay.

Options like these also serve to create a balance between earning relatively high premium payments while increasing the odds that the contracts will expire OTM (which, for covered call writers, is a positive outcome).

Writing options OTM serves to help ensure that investors may retain exposure to some amount of the upward price potential of the underlying securities.

When to Buy a Covered Call ETF

It may be a good time to consider buying a covered call ETF when most of the securities held by the ETF are expected to trade sideways or go down slightly for some time. Some investors may find covered call ETFs appealing if they are comfortable trading off potential outsized gains during rallies for near-term income.

Covered call ETFs might also be attractive to those with lower risk tolerance looking to add some potential additional income to their portfolio without having to learn how to write and trade options.

It’s important to know, however, that the focus and performance may vary significantly between different covered call ETFs. Many track index funds, such as the S&P 500, while others may track individual stocks and different funds may employ different call trading strategies. It’s important to research performance and identify funds that align with your risk tolerance.

When Not to Buy a Covered Call ETF

A time when it’s generally not advisable to buy a covered call ETF may be when stocks are rising and making new record highs on a regular basis. This is a scenario where covered call ETFs may underperform the rest of the market.

If the underlying securities rise only slightly, and do not exceed the strike prices set for the covered calls, then these ETFs may also perform well. It’s when stocks rise to the point that the shares get called away from the fund that the fund may underperform compared to holding shares directly.

Pros and Cons of a Covered Call ETF

The main benefits that come from using an ETF covered call strategy are the potential for reduced risk and increased income.

Pros of a Covered Call ETF

Covered call ETFs may appeal to investors seeking enhanced yield, reduced volatility, and more stable long-term returns, though returns may lag during strong bull markets.

Some investors view these ETFs as a way to pursue income while smoothing returns in choppy or rangebound markets. While writing covered calls may help buffer some downside, these ETFs do not eliminate loss risk, particularly during sharp drawdowns or rallies that force shares to be called away.

Cons of a Covered Call ETF

Covered call ETFs are actively managed, which means they tend to have higher expense ratios than passively managed ETFs that track an index. These ETFs may also come with opportunity cost, since writing covered calls can cap upside potential in a bull market when market prices are spiking.

Covered call ETFs also carry both market and options risk. However, the income from options premiums may help offset those costs.

The Takeaway

A covered call ETF is an actively managed exchange-traded fund that provides exposure to the possible benefits of writing call options on stocks, without investors having to participate directly in the options market. For investors looking for a simpler approach, this may be a way to see income without managing options directly. Covered call ETFs have two primary features in the potential for reduced volatility and increased income.

That’s not to say that they don’t have downsides, too. Notably, they tend to be actively-managed, which generally means they have higher associated fees. Again, all of this should be taken into consideration before integrating any type of security into an investment strategy.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

FAQ

Is a covered call ETF a good investment?

It depends on the investor’s goals. Covered call ETFs may be attractive to those seeking income and lower volatility, especially in flat or slightly rising markets. However, they typically underperform in strong bull markets due to capped upside.

Why would someone buy a covered call ETF?

Investors may consider covered call ETFs to generate income from option premiums without managing options themselves. These funds can also reduce volatility, making them appealing to more conservative or income-focused investors.

What is the risk of a covered call?

The main risks include limited upside if the underlying stock rises sharply and potential losses if the stock declines. While the option premium can help provide limited downside protection or partially offset losses, covered calls still carry downside risk and may underperform in bull markets.

How often do covered call ETFs pay income?

Most covered call ETFs distribute income monthly, though payment schedules vary by fund. The income comes from the premiums collected by selling call options, which may fluctuate based on market conditions and the fund’s strategy, and may come from regular dividends as well.