Your credit rating is the guiding feature of your future mortgage and loan applications. So if you make a late payment, how is that going to affect your credit score?
Put quite easily, your credit score is a system that is supposed to reflect to future possible lenders merely how good, or bad, a credit risk you will be for them. If you are a good credit risk then they are more likely to get their money paid back on time, but a poor credit risk increases the chance of late payments, defaults and even repossessions.
This means that a poor credit score can mean that you may not be offered a mortgage or loan when you next apply, or that if you are offered the cash, then the reward may be a higher APR, which will cost you a fortune over the years.
So only how will missing a payment affect the rating? Well, this is what the building societies are trying to work out from the rating - whether you are liable to miss payments or make them all on time. This is what the credit rating is trying to indicate to lenders and, therefore, missed payments will be reflected.
But, there are degrees of missed payments. If you merely forget a single payment, but it is made a day or so late, then it could even be that the bank does not notice the delay and does not even record it on your publicly available credit rating.
However, at the other extreme if you are defaulting frequently or even worse you have several of the loan written off instead of paying the loan in full, then this will affect your credit rating and in quite a strong way.
Even these so called ways of getting out of debt by legal loop holes, that may sound a marvelous idea at the time, ultimately mean a whole pile of missed payments and the building society writing off the debt. They are not merely going to walk away from this, they are going to record the missed payments on your credit score so that future lenders might not be willing to deal with you at all.
So it is all in balance. A late mortgage payment might affect your credit score, but it depends on how late your payment is and how often you make late payments. If you know that you are not going to be able to make a future payment it would be worth speaking to your building society so that they are aware of your situation and might even offer you a mortgage payment holiday. This is a way of omitted a payment with their permission. And because it is with their agreement, it is not going to affect your rating at all.
Your credit scoring is all round how you manage those debts. Odd slightly delayed payments should just have a minimal affect on your credit score, but the effect rises as your frequency and lateness of repayments increases. The aim being that if you miss stacks of payments, other lenders know not to lend to you.
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Written by Keith Lunt of compare mortgage rates . If you want to know more about mortgages , call in!
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