Payment history is undeniably the critical element of your credit score. A well-built credit rating is imperative for bank accounts, credit cards, mortgages, loans, car insurance, mobile phone contracts, etc. It is no wonder that late payments are damaging. They ruin your good credit score more than the bad one. Although, you do all possible things to maintain a healthy credit, a sudden financial crisis may cause a slump in your otherwise first-class credit score.
The impact of a late payment on your credit score
The influence of an overdue payment over your credit score depends on various factors. A missed payment can bring in a drop of 60- to 110-point on a FICO score. Additionally, each late payment calls for late fee. Even though, a late payment red flag of any sort can hurt your score for close to two years on an average, they usually remain on your report for up to seven years.
When you miss a loan payment, it is shown up on your credit report and the creditors use this data to determine your risk as borrower. With creditors considering it a risk to lend money to borrower with a history of late payment, it becomes more difficult in borrowing money. For example, you have a medical emergency and need money immediately. In such a situation, you may resort to loans from conventional lenders. Banks and credit unions usually have stringent loan requirements that are sometimes difficult to meet. They would not approve you a loan, unless you have an excellent credit score. Your credit report is pulled by bank before offering a loan to you. Moreover, even if you are approved for a bank loan, late payments will not only affect your credit score but will also decrease your chances of obtaining financing in future. On the contrary, your credit report also reveals your history of timely payments, which increases the likelihood of you being approved for a loan in future. Subsequently, it also assures the lender that you are a genuine borrower.
A better way to restore your credit score
Whether the payment is for credit card, mortgage, regular debt or loans, the rule of thumb is to maintain a healthy credit score by continuing to make up minimal amount each time. If you want to be punctual with your payments, opt for automatic payments. For example, if you are considering online installment loans with a direct lender, you are allowed to repay your cash advance in fixed regular payments. Thus, the automatic repayment facility or electronic reminders with personal installment loan can improve your credit score gradually. Even if you fall behind payments at times, you can contact your lender and request for guidance. If you are in good standing with your trusted direct lender, your late fee may be reversed too.
Therefore, ensure to get your credit report at least once a year, check for late payments, monitor your credit score, pay your bills or cash loan payments on time and improve your credit score. Note that a good credit score keeps your chances of receiving funding open and fair.