Your credit report helps creditors decide if you are a good risk

The credit report is a document that creditors, employers, and lenders use to determine if you are a good risk for future business. While the saying that applies to mutual funds “past results are not an indictor of future results” also applies here, it’s all the lenders have to work with. As a result, they put a lot of stock into that past performance, and there are certain things that turn up on credit reports that lenders really, really don’t like. One of those things is a late payment, but if it is more than 90 days late, you may as well not have paid it at all.

There are a number of things that can adversely affect your credit report. Many of them are minor, but some of them can hurt you for a long time. Paying a bill 30 days late, for instance, is a relatively minor infraction, provided that you don’t do it that often. Even one payment that is 30 days late, once a year, will probably not hurt your score too badly. It probably will not overly affect your ability to secure a home loan or auto loan, for instance. Lenders are somewhat understanding; they are aware that people occasionally make mistakes or simply forget to pay a bill on time. While the late payment will be noted on your report and will stay there for several years, it won’t hurt you too badly in the long run.

Paying 90 days late, on the other hand, is a different matter entirely. A 90 day late payment is not a simple oversight; it’s an indicator of a serious problem from the lender’s perspective. Paying three months late is an indication that you either cannot or will not pay your bills on time and that you are probably a serious risk to default if offered a loan. Like it or not, statistical models show that people with at least one 90 day late payment are likely to do so again and are the greatest risk to default on a loan. That being the case, a 90 day late payment will not only put a big dent in your credit score, but it will probably preclude you from getting a loan at a good interest rate, or even at all, for up to seven years.

In fact, payments that are 90 days late are ranked by lenders as the rough equivalent of a bankruptcy filing. It’s hard to believe that a lender would equate paying a single bill three months late with someone’s unwillingness to pay all of their bills, but that’s how they are seen. 

The bottom line here is that while everyone makes a mistake every now and again when paying bills, paying one more than 30 days late is a serious mistake that you must try to avoid at any and all costs. A three month oversight could harm you for the better part of the next decade, and no one needs that.

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