Dissecting Credit Scores Part I – Late Payments

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Education & Training with Realities and Dreams

What factors are considered when determining a persons credit score?  How important is your credit score?

When applying for credit, it is essential to know your credit score and how it can affect the outcome of your credit application.

Your credit score and the outcome of your credit application are even more critical when buying a home.  Why is that you ask?  Interest rates and the amount you are financing when you buy a home.

If you have a bad or even low credit score, that will increase your interest rate, which can cost you a substantial amount of money over the life of a mortgage, or even on any credit card or installment loan.

Let’s Talk About Payment History

Your payment history in your credit profile accounts for 35 percent of your credit score.  As you can see, that is an important factor that we need to be aware of!

Late payments will be flagged on your credit report after you are 30 days late.

If you make the payment before that 30-day mark, it should not be reported as a late payment, and in fact, there is a federal law for precisely that.

It is also important to know that your report will differentiate between 30, 60, 90, and 120 days late on a payment.  Obviously, that will also affect your credit score differently.

Now, once you do have a 30 or more day late payment on your report, it will stay on your report for seven years, but its effect on your score will fade over time.

If you are struggling to get your bills paid on time, or don’t have enough money to pay them all, may I suggest you start making some extra income.  You can read 15 Best Work from Home Jobs that Pay Well for some ideas on how and where to make some extra cash.

I would also suggest that you read Should You Pay Off Debt or Save Money.

How Can a Late Payment Affect Your Score

A single late payment can have drastic effects on your credit score. 

If you have an 850 credit score and have a single late payment, it can drop your score by up to 175 points!

In comparison, a 680 score would drop roughly between 80 and 90 points with two late payments.

Now, keep in mind, the higher your score, the more affect a late payment will have.  The credit bureaus also look at how recent the late payment is, how severe it is, and how frequently you make late payments.

Other Effects of a Late Payment

Late payments can have other negative impacts on you, other than lowering your credit score.

First, you can be hit with late payment fees which can be pretty significant.

Second, some lenders will increase your interest rates due to a late payment, and sometimes as high as 29.99 percent!  On top of that, if you are on a 0 percent promotion, they can end that promotion and charge you your normal interest rates.

If you do make a payment late, you should call your lender and negotiate some terms with them.

In some cases, they will remove the late payment fees and reverse the penalty interest rates.

If you are looking to become debt-free, read How We Paid Off $25K in Debt Fast, in Less Than 9 Months for some information and more importantly, some inspiration to start that journey!

Posted by

Carey Zielke

 

 

 

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