In case you ever failed to repay a credit card, mortgage, or other loans on time, then you might be aware of how it can be disturbing. You are worried about the penalties and even much worse, how it will impact on your credit scoring, mainly if your history of repayments represents its 35%.
Nobody would deliberately wish to affect his score negatively. In any case, before you stress yourself, you ought to have a clear insight on how late payments work and whether the repayment will be categorized as a late one.
Failure to Pay Bills
Regardless of whether you pay monthly installments on time, you can surprisingly lose your job or fall into a financial crisis hence rendering you unable to pay bills within the stipulated time frame. Failure to pay bills on or before the due dates could drastically drop your credit points and be considered a credit risk by loaners.
By any chance that you happen to skip payments for over a month, then it is almost certain that your lender might forward the details to the relevant credit bureau. For that matter, those details are likely to appear on your credit report and act as a determinant of your scoring.
The Degree of Impact of a Late Payment on Scoring
How much a missed payment might influence your credit scores relies upon different elements:
- Did it occur once or it has become a norm.
- The weight it carries.
- When it happened.
- Your present score.
Credit Reporting Agency’s Specific Criteria
Every Credit Reporting Agency (CRA) has specific criteria for assessing your credit history and awarding scores. Therefore, the award of points depends on the agency that is handling your case of late payment. Most importantly, always be aware that whenever a score inquiry is placed, an update of your score is done.
Generally, the longer a loan or bill remains unsettled, the more it hurts your overall scores. Missing payments by a month could have less significant damage than being three months late. Furthermore, if it happened recently, it could have a more significant adverse effect than the earlier ones. A single late payment might be of an adversely drop high scores.
With regards to FICO, being late in paying your bill or loan by 30 days can decline your 780 points by 90-110 even though you have previously never missed a payment. In the same line, a client who has 680 points and with double late payments (two years ago had delayed paying his credit for three months, then a year later delayed to pay a car loan for a month) would have his score decline by 60-80 points subsequent to having an additional delayed payment by one month.
Missed payments impact diminishes as time goes by. In case you generally have immaculate credit and higher scoring, be aware that a single late payment is likely to decline you scoring even by 100 points.
Late payment information (whether one or several) appears on your report for the following seven years. Adopting the habit of failing to pay, you might have your debt written off and sent to debt collectors. The collection appearing on your report will see your credit scores significantly dropped.
Together with point’s reduction, you might also be hit by heavy penalties for late payment in addition to hiked rates of interest on loans as well as credit cards. Even a single day late payment could have you fined, and in case you have the tendency of paying late, lenders may raise your future interest rates. This implies that to obtain a credit, you will be forced to pay more.
Avoiding Late Payments
Missing a payment by a couple of hours or a day is not wrongdoing; however, making it a habit, the penalties will keep on adding up as well as diminishing your points. To avoid such situations, you may consider implementing the following strategies:
- A similar date of payment – Paying all your credits at a go minimizes the chances of forgetting any.
- Auto-payment – By ensuring your account has sufficient amount to avoid charges for an overdraft, you may request the institution you hold an account to make payments whenever they are due.
- Request for notifications – You may ask for a text message or email alerts from your lenders to notify you when you are supposed to pay.
Your Credit History
Late payment of bills might lower your credit score; therefore, it is a matter to be taken seriously. Upon realization that you have fallen behind in payments, you may consider settling the bills immediately to guard your score before the 30 days elapse. The 30 days might be over, however, the earlier you clear the credit, the earlier the damage stops.
Changing credit history is impossible, although if from now on you will make your payments timely your score is bound to be great again.