Why you never want to pay late

Posted on October 15, 2008

One of the biggest way people ruin their FICO score is by paying late.  This is a huge mistake.  It ranks as one of the top negative factors you can have on your credit report.  Well, besides bankruptcy, collections, or some other judgments against you.

So why is paying late considered so negative.  If you were a lender a prime concern you have is being paid back for the money you lend.  If your borrowers starting paying late you get worried and this something a creditor just doesn’t need.  Secondly, there is a high relationship between late payments and default.  Borrowers that are late often are late for a reason.  It more than likely is because they have no money.  It is a sign of bad things to come.

For consumers paying late could put yourself in over your head.  As you pay late fees are added.  This could be just seen as pure compensation for the lenders worry or as a direct profit stream since this money will not be applied to the money owed.  A penalty of an increased interest rate could also be assessed on the account.  Together this will boost your monthly payment.  The average American consumer has several different credit cards and each carry balances.  If this was to happen on even two or three credit cards, consumers could face a tighter month to month existence because the monthly payments are eating more of the monthly income.  As this happens budgets get tighter.

This has the potential of a downward spiral.  Pushing you ever closer to your limits.  Furthermore, paying late is more often done by those of us that are close to our limits.  Increase payments will only make it more difficult to get out of the burden.

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