Late payments reduce credit scores As I’ve noted above, credit scores are used by financial institutions and others as a way to predict how risky their investment will be with a particular consumer. If your credit score is low, it indicates that you are a high risk consumer, and more likely to make late payments in the future. Because of that, John Ulzheimer for www.credit.com indicates that “the most common credit scoring systems are set up to predict only one thing: how likely you are to have a 90 day late payment or worse in the 24 months after your score is calculated.” As you can image the number one factor in a credit score reduction, is a late payment. If you have a 30 or 60 day late payment reporting as currently past due, your score will drop. “A single skipped payment can knock 100 points off your scores…” (Source: Liz Pulliam Weston, MSN “Be smart with your first credit card”). At that point you need to pay it off immediately and the negative impact from the late payment will be temporary. As long as you are consistently on time with your payments an old 30 or 60 day late payment will not linger for long as long as it was an isolated occurrence.
Avoid being 90 days late at all cost. “If you have been over 90 days late (even just once), the credit scoring models consider you much more likely to do it again. One 90 day late payment will damage your credit for up to seven years” (Source: John Ulzheimer, www.credit.com). At this stage you are considered “high risk” to creditors and can count on a low credit score. If you are approved for credit, you can count on an extremely high interest rate and low balances.
120 days late is one step further than the 90 day late. If your debt is “charged off” or sold to a third party collection agency it will lower your credit scores even further.
Past 120 days late consumers may experience additional information on their credit report.
• Collections – Result of late payments. Basically your creditor turns your information over to a collection department to try and collect where the creditor was unsuccessful (Helpful tips Chapter 6 “Managing Debt) • Settlements – A deal made between you and the creditor to pay an amount less than what is owed. Once the agreed upon amount is paid in full the debt is considered closed. • Delinquent – You are delinquent when you haven’t made a payment on a loan or credit card on time. In credit reports you will show delinquent if you are 30, 60, 90, or 120 days late. Delinquencies are serious and will negatively impact your credit score. • Default – You are default when you have not paid a debt that was owed. You are in default after several reports of delinquency. Default status will negatively impact your credit score. • Charge-off – An unpaid portion of a bill that a lender has accepted will never be paid and has recorded on their books as bad debt (loss). Charge-offs will negatively impact your credit score.
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