This is one question that has been asked time and time again. When hardships and struggles get in the way, a late payment is bound to happen. So how many points will your credit score drop if you happen to miss one payment? Well, that number depends on a few different factors. We will try to give you some insight into the credit-scoring system but it is difficult because credit scores are calculated using a long-secret formula created by FICO.
Some light has been shed on the mysteries of just how our credit scores are affected by different things. FICO has disclosed how certain things like late payments, debt settlement (not to be confused with debt consolidation), a foreclosure and/or a bankruptcy could affect your credit score.
Let’s take a look at how FICO might calculate the hit your credit score would take for a 30 day late payment on your mortgage. We will use three credit scores of 670, 720, and 780 as our examples. Keep in mind that a 670 score is considered average while a 780 score is considered to be excellent.
These examples are as follows:
- People with an average credit score of 670 could see their score drop down to around 520 or 530 after a 30-day late payment. That could be a possible drop of 150 points.
- Consumers with a score of 720 could see that score drop down to 580 or 590 after a 30-day late payment. That’s a possible drop of 140 points.
- People with a credit score of 780 could see their score drop as low as 620 after a 30-day late payment. That’s a possible drop of 160 points!
You might be surprised when you find out that the person with the higher credit score (780) is likely to take a much bigger hit on their score for everything from a single late payment to a bankruptcy. However, no two consumers are alike so the point deductions will vary, even between two people who have the same exact score of 780. The FICO point system takes into account any indication that you’re in over your head. Things like late payments and maxed out credit card limits are considered warning flags, meaning that you might be headed for financial trouble.
If you have a low credit score, it’s important to work hard to try and raise it. Credit scores have become increasingly important if you need or want to borrow money, obtain a car loan, or purchase a home. Credit scores can also affect your ability to do simple things like buy a cell phone or how much you’ll pay for insurance. Applying for a new job could also be hampered by a low credit score. There are many employers who will look at your credit score before deciding whether or not to offer you the job.
Try to keep your payments on time, even if you can only make the minimum payment. If you are unable to make your minimum payments on time, are struggling with debt, or possibly facing a foreclosure, get professional help immediately.
Lauralynn Schueckler is the Online Marketing Specialist at Advantage Credit Counseling Service. She is the author for Advantage CCS’s Blog called Dollars & Sense. Advantage Credit Counseling Service is a member of the National Foundation for Credit Counseling. Contact Advantage Credit Counseling at 866.699.2227, or visit them online at www.advantageccs.org.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.