Missed Payments Mean More Than Late Fees

Many of us have been there: juggling bills and dealing with unforeseen financial situations. Life rarely goes exactly according to plan. Still, it’s important to realize that decisions made today can have lasting effects on the future — especially when it comes to your credit.

Credit scores are based on a variety of factors, including credit history, amount of accounts being used and their balances, and late and missed payments. Typically, lenders put the biggest focus on the last point. They want to ensure loans are paid back within the agreed-on terms, and that they can count on regular payments.

Here’s how late and missed payments affects your lending potential:

Short-Term Effects

Most lenders give a “grace period.” This is usually up to four days after payment has been marked due. During this time, most lenders won’t charge a late fee. However, payments that come in after this date are subject to a late fee. Sometimes, there are multiple fees. It’s important to note that lenders go by the date the payment was received, not when it was mailed or dropped off. Fees vary by lender, terms, account balance, and other factors.

Regardless of whether you’ve been late once or multiple times, your interest rate will likely go up, typically when payment is 60 days past due. This means you’ll be paying more on the loan over time, which also has long-term effects on your credit and ability to get new loans. It also means you’ll lose promotional terms awarded when you signed up for the loan.    

Late and missed payments are reported to the three credit bureaus, which directly affects your credit score. Most lenders go by credit score when making decisions about whether to lend. Poor credit doesn’t necessarily mean you won’t get a loan, it just means that you’ll likely get a higher interest rate, which often translates to increased monthly payments.

Long-Term Effects

However, when lenders see a pattern of missed and late payments, they’ll flag you as a ‘high risk’ borrower. In many cases, this means you won’t even be able to get the loan you seek. That can have negative effects on your quality of life, particularly if the loan is for a necessary and/or urgent need.

In addition, added fees and higher interest payments add up fast. Your goal is to get out of debt, not deeper into it! The fact is, however, that most lenders apply payment to the interest first, which means the actual balance can remain stagnant for years.

The good news is that, due to the Credit CARD Act of 2009, universal default has been banned. That means creditors can’t raise your interest rate when you miss or pay late on another account.

How to Recover

You don’t have to struggle alone or become stressed out over how to pay all your bills and debts. Help is available. Check on Hold is a valuable resource when you need cash fast or are looking for alternatives to achieve your financial goals. Licensed, bonded, and insured, we’re a reputable business with a lengthy list of satisfied clients.

Make repairing your credit and reducing your debt a priority in 2018. Stop by one of our many Central Florida locations, and take the first step to a debt-free new year!