Financial crises usually don’t happen over night. If you are like many individuals, the financial difficulties you may be facing have crept on you slowly. Credit cards that once had 0% interest may have increased after a year, or maybe the number of credit cards you have has increased over time, and now you find it is hard to keep up with the minimum payments. An unexpected illness or injury can strain your finances. Maybe you have lost your job or have recently gotten divorced. All of these things can add up to financial crisis, where suddenly you don’t know how to pay all your bills on time.
If you are in this situation, you are certainly not alone. You may be wondering what happens to your credit score when you are no longer able to pay your bills on time. As we discussed in Part One, paying your bills on time (by paying a bit in advance) is the best thing you can do to improve your credit score. Conversely, not paying your bills on time will negatively affect your score, as 35% of a FICO score is your payment history. The most important factor to a potential lender is whether or not you will pay your bills in full and on time. The more recent your good (or bad) payment history, the more important it will be for your credit score.
“Four Things Happen When You Pay Late:
1. Your creditor will charge a late fee. Your next billing statement will include a fee for the late/missed payments. Late fees typically range from $15 to $35. You'll receive a late fee each month your payment is late.
2. Your interest rate could increase. Creditors don't just penalize you with a fee, they'll often increase your interest rate to the default rate. This is the highest interest rate charged by a creditor usually as a penalty. The higher interest rate increases your finance charges making it more expensive to carry a balance.
3. The credit bureaus are notified when your payment is more than 30-days late. An entry is added to your credit report and will stay for seven years.
4. Your credit score will drop. Because payment history makes up 35% of your credit score, late payments can have a significant effect on your score affecting your ability to get new credit in the future. “
1. Your creditor will charge a late fee. Your next billing statement will include a fee for the late/missed payments. Late fees typically range from $15 to $35. You'll receive a late fee each month your payment is late.
2. Your interest rate could increase. Creditors don't just penalize you with a fee, they'll often increase your interest rate to the default rate. This is the highest interest rate charged by a creditor usually as a penalty. The higher interest rate increases your finance charges making it more expensive to carry a balance.
3. The credit bureaus are notified when your payment is more than 30-days late. An entry is added to your credit report and will stay for seven years.
4. Your credit score will drop. Because payment history makes up 35% of your credit score, late payments can have a significant effect on your score affecting your ability to get new credit in the future. “
However, it is important for us to note that not all late payments are the same. While thirty- and sixty-day late payments affect your credit score more in the months they occur, they affect your credit score less as time passes. Ninety-day late payments, on the other hand, are more harmful to your credit score, and can be just as much a hit to your score as a collection.
At this point, many of you may be asking if bankruptcy will hurt or help your credit score. That is a very good question, one we will discuss in Part Three (coming soon!) of our series on credit and bankruptcy. Be sure to visit http://www.KDBLawFirm.net/ for more information.
Be safe and take care! ~Kirk Berkhimer, Your Virginia Beach Bankruptcy Attorney.
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