Sunday, December 16, 2012

Why a Late Credit Card Payment Affect My Credit Score

Amongst all the bills that you have to compulsorily clear every month, credit card bills should be your top priority. One late payment have the potential of hurting your credit score badly and cost you a lot in the long run, even if it was a result of a sheer mistake. However, if you are already aware of the fact that you would not be able make payment within time, then you should try calling them up and negotiate with them to control the damage.  

The reason
The credit companies promote the different range of credit cards available to the diverse categories of customers not out of altruistic motives. The reality is that they are providing you with all these facilities because they are going to earn a grand profit by providing you with the money when you are in need of it.

Due to all the defaults in payment from the various clients, they approximately loose out about 60 billion USD every year. The strict measures that are being taken up by the credit card companies in case of late payment even for a day is owing to the fact that they categorize all the late payer as defaulters. Therefore, even if you have defaulted only once it is definitely going to impact your credit score.

Impact of late payment on credit score
The credit score is primarily a numerical digit that is used for expressing the credit worthiness of an individual. The credit score of an individual is basically dependent on his payment history of the loans and the credit cards as well as credit report. Approximately, 35% of the credit score is dependent on your credit card payment records of the past.

Thus late credit card payment is certainly going to have a negative impact on the credit history of the individual. Though any default in credit card bill payment is not informed to the bureau till 30 days but after that serious actions are taken. The credit score will drop according to the different tiers of default payments and it generally varies between 60 points to 110 points.  

Impact of lower credit score on interest rates
A good credit score increases the credit worthiness of the person i.e. he or she is being regarded as a dependable individual who will fulfill his or her responsibility to give back the borrowed money in time. An individual with better credit score enjoys a lot of benefit like lower interest rates and flexible terms. However, if your credit score suddenly drops down it is automatically going to affect the interest rate of the loans that you have already taken as well as the interest rates on your credit card. Therefore in the long run you will end up losing a lot of excess money just for your negligence.

Once you have been tagged as a defaulter, then it will take at least one year to regain back your previous score. But it can stretch up to three years depending on the gravity of the problem.

Therefore, a small negligence on your part has the potential of bringing about a massive difference in your current financial standing. So play safe and be more responsible to avoid any such situation.

About the Author:
The above article is written by AJ who is associated with Page Once as their supporting staff. In her free time, she loves to share her knowledge via her articles on different niche including finance and politics. She recommends only Cox cable bill pay for smoother and hassle free transactions advises to check for more details.
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