Monday, 20 May 2013

The Ripple Effect of Missing Credit Card Payments

The privilege and convenience of using a credit card is within reach of most consumers and managing one effectively, certainly isn’t rocket science. There are a few simple rules to follow that even a child would understand. Never borrow more than you can afford to repay no matter how much available credit you have and always pay the bill on time. Easy! Right? Well, it should be! However, problems arise with wrong-headed thinking that says ‘what’s the big deal?’ when a payment is missed or one is made late.

Prior to the rules implemented by the CARD Act of 2009, the window of opportunity to pay your credit card bill vary from one lender to another. There would be times when a payment was due in less than ten days, making it difficult to juggle funds in such a short time to pay within the allotted time. The new rules mandate that consumers be given 21 days to pay their credit card bill, ample time that leaves little excuse for missing the deadline.

What you need to know before haphazardly discounting the importance of paying on time is that there is a resulting ripple effect for missing credit card payments that goes way beyond a simple penalty fee imposed by the credit card company. The areas that may be negatively affected include:

  • Employment

  • Mortgage

  • Apartment Leasing

  • Auto Loans

  • Insurance

Damaging to Your Credit History

The damage to your credit history, as a result of missed payments, is the key to the negative affects listed above. Information collected by the credit agencies on how you manage every credit card, loan, mortgage or lease is used to generate your personal reports. Your credit reports reflect the risk you pose to potential lenders and showcase both your poor credit management records and properly maintained accounts, including; how you handle your credit card bills. The way you choose to manage your finances early will effects your future financial options.

Institutions that you look to for help in purchasing a home or car; securing an apartment or insurance and even for gainful employment will request copies of your reports to review when determining whether they will provide what you’re seeking. If your reports include missed payments, six factors will be considered:

Length of credit history

How recent was the indiscretion

How late was the payment

Size of the outstanding balance

How many occurrences

Number of active accounts

The harshest penalty comes from having a recent infraction. Keep in mind that the data on your reports will remain for a minimum of seven years, however; as the years pass, one lone late payment will be less of an issue.

An individual’s circumstances will have a huge impact on how a delinquency affects their credit profile. Interestingly, the higher your credit score the more impact one late payment may have, dropping as much as 110 points, according to an FICO study.

Hoping for the Best - Being Prepared for the Worst
It’s not unusual for a first time occurrence to be go unreported, especially if it was less than 30 days past due. If you have a long history of paying on time, you’re more likely to be forgiven your one late payment.

If you’re not one of the lucky ones to dodge the bullet and your late payment is posted to your credit reports, be proactive and contact the lender to discuss the issue. Ask that the blemish be removed with a promise to be more conscientious with your payments from now on. No matter how your appeal turns out, follow through and put in place a plan to avoid future indiscretions to protect your credit score and your ability to borrow down the road.

Noreen Ruth is a staff writer at and also writes for a variety of finance based websites and blogs. She primarily writes on credit/debt management and enjoys educating consumers about the latest rules and government regulations, along with the best ways to establish, grow and maintain a good credit rating.

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