Thursday, October 20, 2005

The 90 Day 'Red Flag' For Late Payments

This Motley Fool article looks at what it takes for lenders to take notice. "It has long been understood that if you pay your bills late, your credit score will suffer. Well, it turns out that's not entirely true. Yes, payment punctuality counts for about 35% of your overall credit score. And, yes, creditors get antsy when customers start slacking on sending in their checks. But according to credit industry insiders, lenders give consumers a bit more leeway than you might think."

"As it turns out, the method that lenders use to calculate the impact of late payments is less like a strict scorecard and more like the honor system. There is one thing that credit card companies, mortgage lenders, landlords, employers, insurers, and utility companies have in common: All of their scoring systems are calibrated to suss out borrowers who may pay at least 90 days late (or worse) in the 24 months after their score is calculated. In the eyes of creditors, these consumers are the biggest credit risk."

"In fact, a single 90-day late payment is as damaging as a bankruptcy filing, a tax lien, a collection, a judgment, or a repossession. It doesn't matter if you're late paying a $50 bill or a $5,000 one, all that matters is that you were 90 days behind in paying your due balance."

"The difference between 30 and 60-day late payments and one that is reported as 90 days past due is that the latter will continue to be reported, whereas the two former will drop off once the bill has been settled. Once you've passed that threshold a single time, the credit reporting industry assumes you are much more likely to do it again and therefore keeps the red flag waving."

"Even if you settle the debt with the lender for an amount less than what was due, the fact that the debt was not covered entirely will continue to be reported. Same with repossessions or foreclosures. These events indicate that the consumer did not fulfill his or her contractual obligation with the lender and will be reported as a serious delinquency for up to seven years."


At 1:26 PM, Blogger Ben Jones said...

What should be noted here is the number of 90 day late accounts there are in 3 to 5 year old subprime catagories. The FHA 90 day rates are in double digits as are VA loans.

At 8:42 AM, Blogger MazNJ said...

Now while I wouldn't lend money to someone who was 90 days late with anything, isn't it a tad ridiculous to have a system where a single 90 day late payment is rated equally with a bankruptcy/foreclosure?


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