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How Will Your Credit Score Can Effect You

By: Chris Goodman

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Figuring out exactly how credit scores work is problematic. Like learning to speak Chinese and setting the clock on your DVD player, credit scoring isn't something that nearly everybody can easily master. In this article, we will reveal secret details about late payments and the way they impact your credit scores:

Within your complicated world of credit scores you can find one undeniable fact that basically everyone assumes is true: late payments are bad to your credit scores. Not just are late payments bad, but they are also assumed to be among the worst things you could do to your scores. The first sign of a late payment on your credit reports signals impending credit doom, right? It seems that this isn’t precisely the case after all.

There can be thousands of slightly different credit scoring models used today, each with a new purpose and formula. The most typical credit scoring systems are developed to predict just one thing: how likely you happen to be to get a 90 day late payment or worse within the 24 months after your score is calculated.

Credit scores are used by financial institutions, insurance companies and utility companies as an efficient way to predict how risky a customer you will be. But if your credit score is low, it indicates that you're more likely to make late payments or file costly insurance claims. In turn, this means that the creditor is more likely to lose their investment by lending you money. After you understand that credit scores predict this specific behavior, it’s a great deal easier to figure out how to manage your credit.

Because scoring systems are so focused on predicting whether or not you’ll go a minimum 90 days late, surprisingly, an old 30 or 60 day late payment is actually not that damaging for a credit scores so long as it is an isolated incident. Only when your accounts are currently being reported 30 or 60 days late on your credit reports, will your credit scores plummet temporarily.

But if your 30 or 60 day late payments are an infrequent occurrence, this sort of low level late payment will damage your credit score only while it is being reported as currently past due. They shouldn’t cause lasting damage to your credit score after this period passes unless you make 30 or 60 day late payments on a regular basis. In this case, the truth that you are habitually late with your payments will cause long-term damage to your credit scores and prevent you from obtaining a car loan or other type of loan product.

It’s a whole new ballgame after you have a 90 day late payment, however. If you have been over 90 days late (even just the once), the credit scoring models consider you more likely to accomplish it again. One 90 day late payment will damage your credit for as much as seven years. From your scoring perspective, just one 90 day late payment is as damaging to your credit scores like a bankruptcy filing, a tax lien, a collection, a judgment or repossession. Being 90 days late makes you be viewed as being a possible “repeat offender” and a higher risk to creditors. Here’s a summary of how late payments impact your credit scores:

* 30 days late - This record will damage your credit scores only when it is reported as “currently 30 days late.” The exception is when you are 30 days late often. Otherwise, a 30-day late payment will not cause lasting damage.
* 60 days late - This record will also damage your credit scores when its reported as “currently 60 days late.” Again, the exception is when you are 60 days late often. Otherwise, it will not cause long-term damage.
* 90 days late - This record will damage your credit scores significantly for as much as 7 years. It doesn’t make a difference whether your account is currently 90 days late. Remember, the goal of this scoring model is always to predict whether or not you'll pay 90 days late or later on any credit obligation. By showing that you have already done so means that you are more likely to do it again compared to someone that has never been 90 days late. As such, your credit scores will drop.
* 120+ days late - Late payment reporting beyond the initial 90 day missed payment does not cause additional credit score damage directly. However, there is an indirect impact to your scores. At this time, your debt is generally “charged off” or sold to a 3rd party collection agency. Both of these occurrences are reported on your credit files all of which will lower your credit scores further.

Now you understand how your credit effects you both for the short and long-term, you should definitely make those payments on time. You are able to often times find help in managing your credit problems with a credit counseling agency, most of which aren't for profit companies. It is possible to always find more details about your credit and obtaining your next car loan online at OpenRoad Lending.

Article Source: http://depositarticles.com/

OpenRoad Lending is an online lender with a consumer friendly website providing auto financing solutions to consumers in the process of purchasing a new or used vehicle or refinancing their existing auto. Visit the website at www.openroadlending.com for more information about how easy it is to get a car loan.

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