Everyone is familiar with the term credit score but only a few know how credit scores work. Learning how credit scores work requires a lot brain power as it is not something very easy to completely comprehend. It is like learning Chinese or figuring out how to set an alarm on your DVD player. In other words, it is complicated.
This is no secret and most people agree with the fact that late payments are bad for our credit score. But with this fact people also tend to assume that late payments are the worst possible things that you can do to your credit score. But let me burst the bubble, late payment is not the worst thing that you can do to your credit score. Yes, you heard it right. Now let me explain.
There are many credit scoring models being used across the globe and all of them slight differences in their algorithms and serve a different purpose. You will be surprised to know that the most commonly used credit scoring systems are set up to predict only one thing and that is “how likely you are to have a 90-day late payment or worse in the next 24 months after your score is calculated.” These systems are used by financial institutions, insurance companies and utility companies as an efficient way to predict how risk a consumer will be. If your credit score is low, this is a clear indication that the probability of you paying your bills late is high. This low credit score also tells the creditor they are more likely to lose their investment by lending you the money. Once you fully understand this system, it will be a lot easier for you to positively manage your credit.
As the scoring systems are focused on predicting your payment being late for at least 90 days, an old 30 or 60-day late payment does not damage your credit score as much as you thought it would. Provided it is an isolated incident and most of your payments are on time. Otherwise you really need to take a look at your spending habits. Habitually making late payments can also cause long term damage to your credit score. So, if one or two of your payments are 30 to 60 days late it is not that bad.
However, the entire situation changes if your payment is at least 90 days late. Due to this insane delay, the credit scoring system will consider you to likely repeat this mistake and are a risk to the creditors. I call this a mistake because no one in their right mind would delay a payment to over this period of time. You will be shocked to know that one 90-day late payment can damage you credit score for up to 7 years. In other words, the damage caused by a single 90-day late payment is equivalent to the damages caused by bankruptcy filing, a tax lien or a judgement. Here’s a summary of how late payments impact your credit scores:
30 Days Late
A payment that is 30 days late will only damage your score if it reported as “currently 30 days late”. Otherwise you are good to go. But if you have many 30-day late payments then expect real damage to your score.
60 Days Late
If your payment is 60 days late, you don’t have to worry much as this also damages your score if it is being reported as “currently 60 days late” and such late payments are not made often.
90 Days Late
If for some reason your payment is 90 days late then your score is in trouble. As this can damage your score for up to 7 years. Your credit score will drop as the scoring model now considers you to have a higher probability to repeat this again as compared to someone who has never been this late in making a payment.
120 Days Late
If your payment is 120 days late, it will not affect your score directly as the damage was done at the 90th day of delay. At this point your debt is usually “charged off” or sold to a collection agency and this is reported on your credit file thus lowering your credit score further.
If you continue to miss your payments beyond 90 or 120 days, the following records may also harm your credit score:
Now that you have familiarized yourself with the credit secrets, you should keep a few things in mind. You should make all your payments timely but remember being 30 to 60 days late in your payments isn’t the end of the world. You should start worrying when the delay goes up to 90 days. As this insane delay is a real credit score destroyer. We highly recommend that you avoid this 90-day delay at all cost.
However, if you already have a 90-day late payment on your record then your score has already dropped and you probably know it as well. Even with this record you can still take steps to improve your score. Make sure to thoroughly go over your credit report and identify and repot and discrepancies that you come across. Remember, you have a right to dispute any errors in report by law and you should not shy away from observing this right. Hire professional help to make it easier for you. Once you get rid of any errors and discrepancies you credit score will start to improve.
Should you have any questions regarding credit repair please feel free to contact us at 1-833-353-9273 or firstname.lastname@example.org. Our friendly Credit Specialist are standing by and waiting to address any of your questions or concerns. Don't hesitate call today!!!