Determining a credit score is a tricky business, since there are thousands of credit scoring models in use, each fitting a consumer into their particular model. But they all are trying to predict the same basic thing: the likelihood of a consumer being 90 days late on any payment within the next 24 months. Credit score isn’t only used for mortgage loans anymore, now insurance companies utility companies, and even employers look at credit as an indicator of timely payments and responsible behaviors.
If you’ve ever been late on a payment (like most of us have) the bad news is that it will harm your credit score. But the good news is that not all late payments are created equal. Since scoring systems have the basic goal of predicting if a consumer will be 90 days late, older 30 and 60 day lates have less of a negative impact on your score than you may think. Of course, if an account is currently 30 or 60 days late, that’s a big indicator that it may go 90 days late, and therefore hit your score pretty hard.
However, if you’ve been 30 or 60 days late in the past and now the account is current, it won’t continue to hurt your score. Isolated lates are easy to overcome, but if you go late on a regular basis, your pattern of risk to the lenders will reflect poorly in your scores.
A 90 day late payment can harm your credit for up to seven years. When it comes to scoring, even one current 90 day late payment can damage your credit score as much as a repossessions, judgment, tax lien, or bankruptcy.
Surprisingly, payments that are 120 days+ late do not hurt your credit anymore than 90 day lates, and at that point they usually get sold to a third-party debt collector anyway. Also, the amount of the debt that is 90 days late does not come into play, so a 90 day late on a $100 account is just as damaging as if it was a $200,000 mortgage that was delinquent.
Back to the good news – if you have missed a payment recently but get it paid current before the 90 day mark, you’ve dodged a credit scoring bullet. If you have old 90 day lates they can be disputed or counter-balanced with positive credit practices, and if you have a current 90 day late it’s possible to dispute the reporting and get it down to a 30 or 60 day late, saving you a lot of time, money, and lower credit score hassles!
Contact Blue Water Credit if you have any questions or for a complimentary consultation. We'd love to help!
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