Everyone knows that it’s important that you make your mortgage payments on time, since late or missed payments can result in your mortgage lender increasing interest rates or even foreclosing on your property. There is another danger involved in missing payments or sending them in significantly late, however; too many late or missed mortgage payments can have a significant negative influence on your credit rating.
While it won’t have a horrible impact if you’re late once or twice over a period of time, repeated late or missed payments can cause your credit store to start to plummet and the effects can remain for up to seven years. As your credit score drops lower, you may have difficulty when applying for credit cards, store credit, refinance loans, and even some jobs that use credit as a screening method for employment. To help keep your credit secure, here is some additional information on how your credit rating works and the dangers of bad credit.
Your Credit Report
Your credit report isn’t actually a single report that is kept on you, but is instead made up of separate reports which are kept by various credit reporting agencies. Different lenders and credit providers may report to one or more of these agencies, and the reports that they receive will be filed together in order to keep track of your positive and negative credit habits. When you make your payments on-time, your creditors will make positive reports which will improve your credit rating overall. Missed payments can result in negative reports being sent, which will in turn reduce your credit rating.
When you apply for new lines of credit, the credit provider who receives your application will run a check of your credit score. This score will be provided from the credit reporting agency that they request it from, and will reflect the sum of positive and negative reports that the agency in question has received about you. They may also provide additional information regarding the overall balance that you have in comparison to the number of credit lines that you have open, the number of accounts that you have had which have since been closed (and whether they were closed by you or by the issuing credit provider), and some details of your payment history on your existing credit lines (to the extent that they will let the requesting institution know whether you’ve received positive or negative reports in regards to your payments.) The information available may vary from one reporting agency to the next, since not all creditors report to all agencies.
Late Payments and Bad Credit
It has already been established that the more often you send in late payments or fail to send in payments at all then the more negative reports you will have in your credit history. These reports will lower your overall credit score and will also serve as warnings to potential creditors to let them know how often you have failed to meet your required payments during the time that you have been paying on loans or credit lines. Having some negative reports is generally acceptable, as many creditors realize that no one is perfect and is prone to accidentally mailing payments late or having the occasional financial trouble; a large number of negative reports tends to be a sign of severe problems, however, and alerts possible creditors that there is a risk that you might default on any credit that they extend to you and that they might not get their money back. The worse your credit score is, the harder it will be for you to receive any new lines of credit.
Other Dangers of Bad Credit
In addition to making it harder for you to get new lines of credit, you may also experience difficulties with your existing credit lines if you let your credit rating slip. If you have a credit card already, you might not be issued a new card when it comes time for renewal. Loans such as your mortgage may be more likely to increase their interest rates significantly with missed payments because of the other credit problems that are present in your history. As was mentioned earlier, you may also find that you don’t qualify for certain jobs or programs because they check your credit before acceptance as a means to screen out applicants who might bring unnecessary risk to the company. As credit becomes more of a deciding factor in the world due to the financial problems that have been encountered in various countries in recent years, it’s important that you do what you can to protect your credit rating and avoid the negative effects that late payments can have on it.