A good credit score is like good health — you may not always appreciate it until you don't have it anymore. It is important to maintain a good credit score, and one of the primary steps to doing so is to make all of your payments on time. Late or missed payments can have a cascading negative effect on your credit.
An initial missed payment is not necessarily directly reported to the credit reporting agencies since terms may vary on different debts. You may have a grace period or incur a fine for minor late payments, but payments at least thirty days past due are typically reported to credit agencies.
A single late payment can produce multiple hits on your credit score as it moves from delinquency toward default. Late payments are reported again every thirty days until they hit 180 days late, at which point the lender assumes you will not repay. Most lenders will have started collection efforts well before that point, and with secured debt, the property may be repossessed or foreclosed on, but the effects on your credit continue.
Should the lender charge off the loan as bad debt, that action results in yet another ding on your credit report. If the debt is sold to a collections agency, not only does that do further damage to your credit but it also shows up as a new collections account to rack up further negative marks for failure to pay. If a collection agency sues you and wins a judgment against you, your credit suffers yet another hit (not to mention the fact that you now have a judgment to pay off).
Negative marks against your credit do not go away immediately after they are rectified. Late payments stay on your report for seven years from the date you missed the payment. However, a series of payments can be removed seven years from the time of the first missed payment assuming the account is fully rectified.
Most downstream actions also earn seven-year stints on your credit report defined by the respective first date of the action. Debt charge-offs, repossessions, foreclosures, and settlements all stay on your report seven years from the default date, typically 180 days after the first missed payment. A judgment levied against you stays on your credit report seven years after the judgment date, which can be months or even years after the ruling date.
Bankruptcies are the most harmful action, as they stay on your credit report for ten years for Chapter 7, 11 and 12 actions. A Chapter 13 bankruptcy stays on the report for seven years.
If you can make at least a minimum payment on time, you are usually better off than making a full payment late. When even the minimum payment is not within reach, contact your lender and let them know about the situation. Depending on the circumstances, they may be willing to waive a late fee, allow a short grace period, or work out a modified payment plan to extend loan terms in order to make payments more manageable. In the case of student debt where you cannot find employment, you may be able to get a forbearance.
The main point is to be proactive. Lenders can be sympathetic if you give advance notice and try to deal with your debt woes. They will show you no sympathy if you miss payments and make no significant effort to repay.
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