How Late Payments Affect Your Credit Scores

by News Guy on November 16, 2012

(Guest Post)

According to the findings of a CreditCards.com survey, 59 percent of consumers in the U.S. say they pay their credit cards bills last when money gets tight. Around one in four consumers admit to not paying all of their bills on time. Given that the U.S. economy is still struggling to recover from recession and millions of families face huge losses in net worth from decreased property values, late credit card payments can cause significant damage to a consumer’s purchasing power and borrowing potential.

But how do late payments really affect your credit scores and how are penalties applied? Understanding how this works can help you be more strategic about paying off your credit card balances even when money is tight. You can maintain good credit rating even while dealing with financial hardship. This can help you keep your interest rates down and save money overall with less money spent on finance charges for your debt. This includes not only your credit card debts, but also the money you would eventually pay on a mortgage, a new car loan, and more.

All credit card companies work on a 30-day window. Although penalty fees may be assessed to your account if you are only one day late with a credit card payment, a penalty does not get applied to your credit report until you are thirty (30) days delinquent. At the 30-day late mark if you have not paid, the credit company will report the delinquency to the credit bureaus and it will appear on your credit reports.

Following this delinquency mark, the age of the delinquency is also measured in 30 days. Continued delinquency is noted when the payment is 60, 90 and then 120 days late. After 120 days, the account is usually frozen by the creditor and sent to collections. Once an account is sent to collections, the practices the collector can use are regulated by the Fair Debt Collections Practices Act. This means collectors cannot call multiple times in one day on the same debt, they must adhere to call time limitations you place, and they are strictly limited in the language they can use when talking to you.

If you have an account that is delinquent, but has not been sent to collections yet then the attempts for collections are not governed by the FDCPA. However, most creditors are actually easier to negotiate with, because they want to preserve the business relationship they have established with you as a consumer. Instead of dodging calls from the actual creditor, a much better strategy is to have the numbers in order and your explanation for why the account became delinquent in the first place and how and when you plan to get back on track. Many times creditors will be willing to work with you to waive penalties and fees, temporarily adjust your payments so you can get back on track, and even “re-age” the account to remove the delinquency.

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This guest post comes courtesy of Consolidated Credit consumer debt counseling service. Follow them on Twitter.

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