Missed a payment? 😕 Don’t worry, it happens to the best of us – $424 billion worth, according to the New York Federal Reserve. The important thing for your financial future is that you get back on track as soon as possible. This article explains why you want to do that sooner rather than later, as well as some ways that Rocket Money can help.
But first, let’s cover some basics.
Credit and Payment History 101
Why your credit score is important 💰
Having a strong credit score is important for several reasons on your financial journey. Not only does your credit score impact whether or not you get approved for a particular line of credit, like a credit card or mortgage, but also how much that credit will cost you over time by impacting your interest rate and/or repayment period. In other words, even if you're approved for a line of credit, a low credit score can still cost you more money over time than having a better one; and your payment history plays a big part in that.
How does payment history impact my credit score? 🤔
There are several different factors that make up a credit score, and how they are weighted (the percentage of each factor) depends on whether a lender is using a FICO or Vantage score. For example, Rocket Money uses the Vantage 3.0 scoring model, developed by the three main credit reporting agencies (Experian, Equifax, and TransUnion), which considers the below six factors. However, regardless of the scoring model, payment history is always the highest-weighted factor, comprising 35-40% of your credit score.
- Payment history (40%): are you meeting your minimum payments on time
- Credit depth (21%): how long you’ve had credit and the types of credit
- Credit utilization (20%): how much of your credit is used of your total available balance
- Balances (11%): the amount of debt you have
- Recent credit activity (5%): recent credit inquiries or lines of credit you’ve applied for
- Available credit (3%): the amount of credit you have available to you to borrow
What’s a good credit score? 💳
Using the Vantage model, you should aim for a credit score of above 661 to be considered “good” (661-780) or “excellent” (781-850). Anything above 600 is considered “Fair”.
Where can I find my credit score? 📲
To find your current credit score, visit your Dashboard in the Rocket Money app and click "Credit Score".
Not sure whether your credit report includes a past due payment? You can also use Rocket Money to review your full credit report 📋 and any late payments. First, navigate to Credit Score in the app dashboard. Then, click on "Payment History," to see a chart of all payments made throughout your credit history. Any missed payments will be marked in red 🔴, and you can view more detail about those payments by tapping "Late/Missed Payments" below the chart.
See something in your credit history that doesn't look right? Reach out to Rocket Money's partner, Experian, to start a dispute here.
Now that you’ve got the basics down, here are three reasons why it’s important to catch up on delinquent payments sooner rather than later.
Why it's important to get back on track ASAP ⏳
Reason # 1: Continued missed payments are harder to recover from 🔙
Missing one payment isn’t the end of the world – it likely won’t have a huge impact on your credit score if you can make your payment in the next 30 days 🙌 but letting that go to 90 or 120 days can have a drastic impact on your credit score, taking years to recover from.
Here’s the breakdown:
- 30 or 60 days past due (DPD): While a single late payment will only result in a slight drop in your credit score, consistently being late will decrease lenders’ confidence in your ability to pay on time. Further, the more DPD the harder it is for your credit score to bounce back, which is why you want to catch up as soon as you’re able.
- 90 DPD 🚨: According to Credit.com, a payment that is more than 90 DPD can drop your credit score up to 180 points. That’s enough to take your rating down an entire level (from good to fair, or fair to poor, for example). It can also take you years to recover once your account is noted as 90 DPD.
- 120 DPD can have a lasting impact: After 120 DPD, a lender may note your account as a "charge off," indicating a loss and the expectation that it does not expect to be repaid. If so, this mark will be on your credit report for up to seven years 😣 and still holds you accountable for the payment. Even if the lender doesn't report it as a charge off, they may report it to collections, which would also be marked in your credit report.
In summary, the more days past due a payment is, the larger and longer lasting the impact.
Already have a charge off or collections noted on your account?
Unfortunately, paying off the debt now may not have much of an impact, but getting the negative mark deleted will. Luckily, some lenders and collectors are willing to delete the negative mark in exchange for your repaying the debt, even if it’s in collections. If you decide to contact your lender with this request, make sure to get something in writing. While they do not have to agree to the arrangement, it's worth a shot to improve your credit score. A credit counseling agency may also be able to help you in contacting lenders through a debt management plan.
Reason # 2: Your payment history may impact more than your credit, such as housing and job opportunities 😮
Did you know that a potential landlord or employer might run a credit check (with your consent) before deciding to rent you an apartment or hire you for a job? Your credit may also impact other things you may not have guessed, like auto insurance rates in most states. This means that even if you don't intend to apply for credit in the future, your credit history is still important. Given that payment history makes up 35-40% of your credit score (depending on the scoring model), it’s one of the most impactful and immediate changes you can make to improve your credit history.
Reason # 3: Negative credit information stays on your report for up to seven years 📆
Unfortunately, late payments stay on your credit report for up to seven years after they are originally marked past due, even once they are no longer delinquent. Luckily, a 30-DPD payment on your credit report won't have much of an impact, but later delinquencies will stick around. Given that a derogatory mark can stay on your report for up to seven years, it’s even more important to get your accounts paid and current as soon as you can to give your credit the time it needs to improve.
Need help making your payments? 💙
Not sure where to find the extra money meet your missed or minimum payment? Let us help you! Here are a few things you can try to help get ahead:
- Find some extra savings 💰: Rocket Money can help you cancel a subscription or negotiate a bill to free up some extra cash to put towards your debt.
- Stay on top of your budget 💸: Set up a budget to help allocate cash towards your debt payment and track spending moving forward.
- Consider debt consolidation 💳: We recommend checking out Rocket Loans to see if they may be able to consolidate or reduce your monthly payments.
- Consider student loan refinancing 🎓: Rocket Money’s partner Credible may be able to lower your interest rate and/or monthly payment through student debt refinancing. Read this article to find out whether it makes sense for you.
- Still can’t keep up? 😟: If you still can't keep up with your minimum payments, consider contacting the National Foundation for Credit Counseling, a nonprofit agency that may be able to work with your lenders and come up with a debt management plan to get you back on track.
We hope this article is helpful in understanding your credit and figuring out next steps to catch up on your debt.