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When Will A Late Payment Hurt My Credit?

When Will A Late Payment Hurt My Credit?

Having good credit is a must if a consumer wants to qualify for a mortgage, purchase a vehicle, get a job or rent an apartment. That said, maintaining good credit early in life leads to additional financial opportunities and saves money over the long run. There are a number of different factors which are used to calculate a credit score and one of the most important is payment history. In a perfect world, you will never make a late payment but if you do it is important to know when and how it will hurt your credit.

What Makes Up A Credit Score?

Five of the most important factors when calculating a credit score include in descending level of importance, payment history, total amount owed, length of credit history, new credit accounts and credit mix. As you can see from the order in which they're listed, payment history is the most important determining factor in a consumer's credit score. The reason this single factor is so important is because it is the primary basis for consumer credit. The entire purpose of credit is to borrow money from a lender and then pay it back in either a revolving or installment manner over a period of time. If the consumer can't pay their loans back in responsible manner then everything else is irrelevant

When is a Late Payment Applied?

It is almost universally accepted by all lenders, credit issuers and financial institutions to report a late payment on a credit history after 30 days delinquent. Keep in mind, this is 30 days after the initial billing due date which means the consumer has had approximately 50 days up until the point a missed payment is reported to the credit agencies. This includes the 30 day window in addition to an approximately 20 day grace period for items like credit cards and mortgage payments. There is some discretion by businesses to delay late payment reporting. It depends if they have the flexibility in their billing system and if the consumer is proactively working with them to get caught up on their payments to bring the account current.

How Do I Remove a Late Payment?

For the most part, late payments will stay on an individual's credit report since it is not only relevant to the existing creditor but to future lenders as well. That's not to say a late payment is set in stone especially those of the 30 day variety. Many consumers in good standing with their credit card company, who have long-term relationships and has never missed a prior payment can successfully have a late payment removed. This of course is at the discretion of the credit card company or other lender and normally applies only to account holders with great credit and a spotless payment history with the company.

Steps to Take in the Future

Ideally, no consumer would ever make a late payment to a credit card company, mortgage company or any other financial institution. Given that payment history is the single most important factor when calculating a credit score it is also the single most important step to take when managing your credit. Closing an old account, adding a couple credit cards and shopping around for a mortgage are, in aggregate, less detrimental than making a few late payments. If you do have late payments in your credit history, take all necessary steps to prevent it from happening again in the future and with time their impact will be lessened and your credit score should increase.

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