THE REAL IMPACT OF LATE PAYMENTS
Posted on: Sep. 22, 2017 in Credit Score

You’ve heard time and time again that it’s very important to never be late with a credit card or loan payment. Late and missed payments can result in extra fees and increased interest rates. They will also show up on your credit history and start dragging down your score. The more often you miss payments, the more hits your credit will take.

You may think that you already have all the credit you need, so what does it matter if your score tanks? Or maybe you think one missed payment won’t really hurt that much. Here’s what you need to know about the true cost of missed payments and negative information.

As we mentioned, late and missed payments will start to hurt you immediately. Assuming you’re missing them because you’re short on cash, incurring additional fees will only make that situation worse and can lead to a cycle of more missed payments and more fees.

Most credit cards state in the fine print that missing payments can lead to an increase in your interest rate, sometimes to 20% or higher. This means that your balances will not go down as quickly and it will take you longer to pay off your debt. In addition, your monthly payment will likely go up, again impacting your cash flow.  The increased interest rate will also be applied to the late fee the card will charge as well.

If you miss a payment because of insufficient funds in your bank account, your bank will also charge you a fee. This makes your low balance even lower which keeps the cycle going.

If you’ve never missed a payment before, it’s worth it to reach out to the lender and ask them to reverse the fee and not increase your interest rate. Many will do one or both for customers in otherwise good standing. Just make sure your first miss is your last because they likely won’t be so generous twice.

As these late payments get reported to the credit agencies, your score will start to drop. When you do need to apply for credit, including credit card increases, auto loans, mortgages, or you want to apply for a job or an apartment, your lower score could cause you to be declined. Or, if you’re approved, you may have to pay more for the same services as someone with a higher score. These situations can all leave you in a difficult financial position which will only stand to worsen your overall credit standing.

Of course, avoiding late and missed payments is your best defense. If you’re already stuck in that cycle, you’ll need to find ways to cut your spending and get yourself current to break it. It can be hard work, but it’s doable and worth it.

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