You should pay your monthly credit card payments on time, each month! The best way to maintain a strong, healthy credit rating is to pay all of your bills on or before the due date each month. This advice extends to all creditors, even utility companies that traditionally don’t report your account activity to local credit bureaus.
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While some creditors don’t report to the credit bureau, most do; especially credit card issuers. Even a few late payments, can cause a sharp downswing in your credit score, at least for a brief period. You never know when you’ll need to pull a credit report to:
- Refinance or obtain a new home mortgage
- Replace a broken down vehicle
- Sign for a loan to help your son or daughter finance college.
All of these actions can be jeopardized by a few late payments that show up on a consumer credit report. That’s all it takes these days to deny a new credit application. Credit rules have tightened considerably since the recent banking collapse and lengthy U.S. recession began.
What else can happen if I’m late with my payments?
Credit card issuers can charge additional fees for late payments and with proper notice can increase your interest rates, potentially costing you hundreds of dollars each year. The average rates on individual accounts are between 14 to 16%. For sub-prime or delinquent accounts, rates average 28 to 30%, almost double!
How does this show on my credit report?
Each month, each credit account is assigned a number indicating when payment was received. A “0” means no payment was registered or was due for an open account. A “1” indicates an account was paid as agreed for that month. A “2” signifies a payment that was received 30 days late. “3” means a payment was received 60 days past the due date and so on.
By the time the credit bureau marks a “9” for a particular month, the creditor has pretty much given up hope of collecting your debt and charged off the balance, passing the obligation along to a collection agency or attorney for further legal action. For a free no-obligation credit report visit, AnnualCreditReport.com.
So I was late a few times. Why should that matter?
Credit reports, like many comprehensive financial documents, tell a story. If your credit history over many years was spotless, a lender might forgive an isolated period of slow or late payments. However, if slow payment patterns are habitual, your credit score will suffer and new credit will be hard to get.
What is a FICO score?
FICO stands for the Fair Isaac Corporation, an American company specializing in data analysis. They have established a national standard for credit ratings, ranking individuals on a scale from 300 – 850. Scores over 700 on the FICO scale are considered excellent. Scores between 600 and 700 are good, while scores between 500 and 600 are only poor to fair.
FICO scores and credit ranking can drop quickly, over a period of months. Unfortunately, the reverse is not true. Yes, credit scores will rise with prompt payments, but not as quickly as they will drop should you stop paying your bills on time. If you need credit counseling, there are many online services ready to help, such as Family Credit Management.
How long does derogatory credit remain on my report?
Credit bureau reports cover a period of seven to ten years, showing all accounts that were opened, and/or active during that period. Delinquent accounts may have recently been paid in full, but they will still show up on a credit report for many years to come. Judgments and liens will also remain on a report, even after they’ve been satisfied, and bankruptcies will appear for 10 full years.
Can I fix or alter my credit report?
So called credit-fixing companies most often charge money for services that you can provide for yourself. No agency can fix a report or alter information. They can provide information that will enable the reporting agency to delete incorrect or erroneous information, which you can do, without cost, by contacting the bureau on your own.
Claims that companies have secret tools or other means of erasing derogatory credit information are false and if a company appears successful in eliminating otherwise correct information, chances are it will pop back up the next time a report is requested.
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