Did you know that just ONE missed payment can reflect on your credit report and could potentially drop your score up to 110 points? Wise Spend Wednesday this week touches on the importance of paying your bills on time. To avoid such downfalls, it's a great idea to set up auto payments on those regular monthly payments!
Here are a few items to note on what happens if you do miss payments.
Impact To Credit Score
Payment history has a large impact on your score. Whether or not you pay your bills on time and in full is extremely important. A good payment history means that you’re a trustworthy borrower and pay your credit card bills and loans back on time. A poor payment history means that you have a bad history of paying your credit cards and loans on time, if at all.
Even one late payment on your credit cards can lower your score up to 110 points. After working hard to build your credit, this can be a huge blow. Therefore, payment history is extremely important and has a strong impact on your score. Missed payments can linger on your credit report for a long time and leave a poor impression on lenders. Late payments should be avoided at all costs.
Conversely, a history of timely payments on your credit cards and loans will raise your score and make you more desirable to lenders. By paying your bills on time and establishing a good payment history you can have a positive impact on your score.
How Long A Missed Payment Stays On Report
Late payments can stay on your credit report for up to seven years. However they don’t always appear for this long.
Your score is calculated by an algorithm that takes many factors into account. This algorithm takes into account how long ago the late payment was as well as whether it was a one-time incident. For example, a single late payment from three years ago will not impact your score very much, but two late payments several months apart in the previous year will significantly lower your score.
The impact of a late payment on your score also depends on exactly how late the payment was. A payment that was 30 days late will impact your score less than a payment that was 60 days late. A payment that is 90 days late or more will have an even more negative impact on your score.
Payments that are 30 or 60 days late probably won’t have a long-term negative impact on your score as long as they’re a one-time occurrence. They may lower your score in the short term, but they shouldn’t negatively impact your score for too long. However, payments that are 90 days late or more can have a lasting negative impact on your score. They are much more serious and can lower your score and show up on your credit report for up to 7 years.
Benefits of Auto Payments
Setting up auto payments aren't as hard as you'd think. It's a big change to move from writing checks and having complete control over your monthly deductions. However, it's rather stressful if you cannot remember what you've paid and what you haven't. Some people resort to a spreadsheet, while others hire a bookkeeper. By setting your payments up to come out the same time every month, you no longer have to worry about what has been paid. You can breathe easier knowing that you didn't forget to pay something.
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