Skipping a Bill Payment This Month Think Again

Skipping a  Bill Payment  This Month Think Again Skipping a  Bill Payment  This Month? Think Again Skipping a  Bill Payment  This Month? Think AgainOne negative mark or past due bill payment on your credit report can take years to repair.If you’re juggling bills come the end of the month (or the beginning), it can be tempting to let one of them slip on by. Sure, you’ll pay a  late fee. But that’s a price you may be happy and willing to pay!  Unfortunately, skipping a  bill payment   or making a  late payment  can result in a much heftier price tag than initially meets the eye..Here’s the truth: While there are a  number of actions that can tank your credit score, one  late payment  on your  credit report  could end up impacting your  credit score  for years to come. Unfortunately,when it comes to  credit scores, the effects of negative behavior far outweigh the effects of good behavior â€" and that damage can take quite a long time to fix.How do  credit scores  work?Credit scores  are like a letter grade for your trustworthiness as a borrower. They are based on the inform ation contained in your  credit reports, which track your history as a credit user  during a seven-year-time period. You have three different  credit reports, one each from the three  major  credit  bureaus: Experian, TransUnion, and Equifax.The original  credit score  â€" the  FICO  score â€" was created by Fair, Isaac and Company and  debuted in 1989.  FICO  scores are based on a scale from 300 to 850. The  higher your  FICO  score, the better your credit. While there are other competitors â€" notably  VantageScore  â€"  FICO  scores are still the most commonly used type of  credit score  out there.While the exact formula for creating  FICO  scores is a closely-guarded secret â€" and evolves over time â€" the general scoring system goes like this:Payment history  (35%): Paying your bills on time is important. In fact, your  payment history  is the single most important factor in your score.Amounts owed (30%): The more debt you owe â€" especially  unsecured consumer debt  â€" the m ore likely that you will have trouble making all your payments.Length of credit history (15%): The longer you’ve been responsibly using credit, the better.Credit mix (10%): The more diverse your mix â€" personal loans versus  credit cards  versus auto loans versus  student loans, etc. â€" the better.Recent credit inquiries (10%): Requests for additional credit resulting in hard credit pulls, can be a sign that’s something amiss â€" especially if there are many requests in a shorter period of time.Your  credit reports  contain a ton of different information drawn from lenders,  landlords, some  utility companies, and even from the public record. Some of that information can help your score, while other information can hurt it. But even if you have a ton of “good” marks on your credit, a few  â€œbad” marks can hurt your credit  for years to come.Negative credit info positive credit info“Your  credit score  is affected by a variety of factors both positive and negative,” explained CPA Logan Allec, owner of  personal finance  site  Money Done Right. “A positive factor would be an open  credit card  that is actively used and always paid off on time. A negative factor would be a  credit card  that has a missed payment.”Unfortunately, a negative factor can have a longer lasting impact that a positive factor, he says.If that doesn’t seem fair, well, it helps to examine things from the opposite perspective.One way to think about the impact of a negative factor is to recognize the purpose of a credit score. “At its core,” Allec said, “a credit score is designed to show banks and lending institutions whether or not you are likely to pay your debts.Your credit history is sort of like your driving record. A single mistake can easily outweigh years of impeccable  behavior. e. Paying your bills on time, making all of your  monthly payments, and monitoring your debt loads can take some diligence â€"  true â€" but that diligence is exactly the kind of behavior that traditional lenders are looking for in potential customers.How long before your  credit  score  recovers?“Unfortunately, even though a  credit score  can be hit by a simple missed payment, it can take significant time to raise your  credit score  as you demonstrate your creditworthiness,” Allec said.And “significant time” doesn’t mean a matter of months. It means years. Smaller negative marks like a new credit inquiry or two will stop affecting your score within a year (at most), but more serious bad marks like bankruptcies could affect your score for well more than half a decade. In fact, bankruptcies stay on your report longer than most information: 10 years!Still, there are no easy fixes to improve a  bad  credit  score, although there are  some programs  and services out there that may be able to help. However, consistently paying your bills on time is the best way.“The key tip for increasing your  credit score  is to never miss a payment,” Allec said. “Some practical tips to make sure you never miss a payment are to set calendar alerts on your phone to remind yourself to pay off your card every month or set up automatic card payments if your bank allows it.”As you continue to make your payments on time and reduce your debt loads â€" ideally to zero, but below 30% of your open credit limits will do just fine â€" the effects of negative marks will start to fade and the amount of positive information on your account will increase.But before you decide to miss your  due date  or skip out on one of your bills altogether this month, take a second to think through the long term consequences. By opting to not pay that bill now, you could end up paying way more in  higher  interest  rates  and fees in the years to come.ContributorsLogan Allec is a CPA and owner of the personal finance website Money Done Right. After spending his twenties grinding it out in the corporate world and paying off more than $35,000 in student loans, he dropped everything, and in 2017, launched Money Done Right. His mission is to help everybody â€" from college students to retirees â€" make, save, and invest more money. He resides in the Los Angeles area with his wife Caroline. Follow him on Twitter @moneydoneright.