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how long do late payments hurt your credit score


jov444
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I had some late payments on credit cards over a year ago but none since.  How long does this hurt my credit score if I no longer have a late payment?  And by how much?  In other words, I've been on some sites that have a simulator that allows you to enter some changes to see what you can do to improve your credit score and by how much.  One of those is to pay down your debt.  My question is, what is my incentive to pay down debt - for the purpose of raising my credit score - if that late payment history will hold it down for 7 years (or whatever the period is)?

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There isn't a black and white answer to your questions(s).  The key to improving your credit score is to manage your debt.  That includes keeping debt to income ratio as low as possible, paying on time, no accounts in collections reporting, and not opening too many new accounts in a short span of time so that the average age of account stays high.  

That said:  2 years seems to be the average number for how long late payments hurt on a credit report.  Under the new FICO 9 rules a paid account is supposed to hurt less than an unpaid one but since how they calculate the scores is protected information and a mystery it isn't possible to determine exactly when an account that is settled for less than a full balance stops being a negative effect on credit scores.

Of course if your debt to income ratio is high, you have a late payment from 20 months ago, and 2 accounts listed in collections your scores will be a lot lower than someone with no collections, low DTI, and a couple of late payments.  

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On 8/20/2017 at 6:14 PM, jov444 said:

I had some late payments on credit cards over a year ago but none since.  How long does this hurt my credit score if I no longer have a late payment?  And by how much?  In other words, I've been on some sites that have a simulator that allows you to enter some changes to see what you can do to improve your credit score and by how much.  One of those is to pay down your debt.  My question is, what is my incentive to pay down debt - for the purpose of raising my credit score - if that late payment history will hold it down for 7 years (or whatever the period is)?

Late payments hurt your score less and less over time.  I have 6 or 8 30-day lates reporting on an auto loan.  The last one was 5 years ago.  I've opened several new accounts in the last year and the lates don't seem to be affecting my score now.  I haven't had any lender deny me credit based on the lates.

I can tell you that 60-day lates are much worse than 30-day lates to the effect that it's better to have several 30-day lates over just one 60-day late.  And the same relative effect applies to 90-day lates and 120-day lates.

Having said that, however, credit utilization (limit-to-balance ratio) makes up 30% of your score.  If you're carrying high balances, that is tanking your score on top of whatever effect the late payments are having.  The 'sweet spot' for utilization seems to be in the 5-10% range.  You want to have small balances reporting every month to show that you are using credit, but want those balances low enough to show that you're not living off your cards.  The nice thing about utilization is the data is not historical, meaning you can carry 100% of your limits every month and then in one month pay everything down to 5%, and your score will shoot up instantly on the next reporting cycle.

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On 8/20/2017 at 6:50 PM, Clydesmom said:

That includes keeping debt to income ratio as low as possible

No it doesn't.  Income is not reported anywhere on your credit report and therefore cannot be used as part of any FICO score model.  Lenders will ask for your income and will independently consider your income against your debt and monthly expenses in determining your ability to repay a debt, but it isn't a part of your FICO score.

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1 hour ago, Harry Seaward said:

No it doesn't.  Income is not reported anywhere on your credit report and therefore cannot be used as part of any FICO score model.  

I disagree.  While FICO may not have a consumer's EXACT income there are other ways FICO determines DTI ratio.  Primary being if balances on all accounts are over a certain percentage and the consumer is only making the minimum payment each month then the scoring model is that the DTI is too high.

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1 hour ago, Clydesmom said:

I disagree.  While FICO may not have a consumer's EXACT income there are other ways FICO determines DTI ratio.  Primary being if balances on all accounts are over a certain percentage and the consumer is only making the minimum payment each month then the scoring model is that the DTI is too high.

CRAs don't report historical payment data.  They only report the last payment made, so it's not even possible for FICO to factor what a consumer has paid each month.

"Your FICO Scores only look at information in your credit report

Your credit score is calculated from your credit report. However, lenders look at many things when making a credit decision such as your income, how long you have worked at your present job and the kind of credit you are requesting."

http://www.myfico.com/credit-education/whats-in-your-credit-score/

FICO doesn't say anything about Income or DTI being part of your FICO score.  Account balances (high, low or in between) are just factored under Utilization.

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9 hours ago, Harry Seaward said:

CRAs don't report historical payment data.  They only report the last payment made, so it's not even possible for FICO to factor what a consumer has paid each month.

It is very much possible.  FICO reports the HIGH credit line and utilization.  ANY consumer whose credit line stays above the specified proprietary percentage in their scoring model is determined to have a high DTI.  It isn't rocket science it is basic math.

9 hours ago, Harry Seaward said:

Account balances (high, low or in between) are just factored under Utilization.

You are making my point for me.  A consumer whose credit line is $5000 and has a monthly high balance of $4995 is clearly only making the minimum payment on the account.  If ALL their accounts are like that for months on end it isn't difficult to prove that the DTI is too high and the FICO scoring model reflects it in a much lower score.  HIGH utilization that doesn't change equates to a poor DTI in the FICO scoring model. 

9 hours ago, Harry Seaward said:

FICO doesn't say anything about Income or DTI being part of your FICO score.

FICO doesn't say anything about a LOT of things being part of your score.  They have never released exactly how a consumer's score is calculated.  That is why the one factor a consumer can control is their debt to income so that their reported utilization stays LOW and they keep negative trade lines off their reports.  The bottom line is a consumer who wants a good score is better off managing their debt than focusing on the score.  If you manage the debt then the score will be fine.

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On 8/22/2017 at 7:52 AM, Clydesmom said:

If ALL their accounts are like that for months on end

What you don't seem to understand is that there is no "months on end".  Any credit report is only a snapshot of the last reporting cycle. Historical monthly balance and payment data is not reported so, again, there is NO WAY for FICO to be able to know what your balance was even 2 months ago.

On 8/22/2017 at 7:52 AM, Clydesmom said:

They have never released exactly how a consumer's score is calculated.

Yes, not exactly, but they give some pretty good insight into what factors are used and what weight each factor carries. But really, the most telling statement for the discussion at hand is when they say "Your FICO Scores only look at information in your credit report". Income data is NOT in your credit report and neither is historical monthly payment and balance info. So since these things don't exist, they are not (and cannot be) used in calculating a FICO score. 

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26 minutes ago, Harry Seaward said:

What you don't seem to understand is that there is no "months on end".  

Maybe for you but I have trade lines going back years that are updated MONTHLY that are reporting the same balances as my statement.  That includes Cap1, CITI, and AMEX, student loans, and a car note with Toyota. 

27 minutes ago, Harry Seaward said:

Any credit retort is only a snapshot of the last reporting cycle.

Which for my creditors is every 30 days.  Except on closed accounts.

27 minutes ago, Harry Seaward said:

Historical monthly balance and payment data is not reported so, again, there is NO WAY for FICO to be able to know what your balance was even 2 months ago.

My balance is reported monthly on all my accounts.  That is how credit monitoring (even free sites) is able to give you a bank card sucker score that indicates your credit is improving or declining.

28 minutes ago, Harry Seaward said:

Income data is NOT in your credit report and neither is historical monthly payment and balance info. So since these things don't exist, they are not (and cannot be) used in calculating a FICO score. 

Income data isn't directly in your report but historical data is calculated monthly.  In fact one thing you are over looking is the new FICO scoring requirements under FICO 9 that require negative accounts to update monthly.  That is what got consumer screeching big time starting the beginning of this year because the negative accounts used to hurt less over time when the trade line simply sat there.  Now that they are updated monthly the FICO scores are impacted more negatively long term. 

Explain this:  if the historical data including balances isn't being reported then how do third party sites like Credit Karma, Credit Check Total and other monitoring sites get that information weekly to update it and give a FAKO score?  I know the balances I see even on a free sit are accurate compared to my actual statements from the creditor.

 

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On 8/22/2017 at 0:44 PM, Clydesmom said:

Maybe for you but I have trade lines going back years that are updated MONTHLY that are reporting the same balances as my statement. 

Yes, updated monthly to reflect your most recent reported balance and last payment. No, your current report does not show what your balance and payment was 3 months ago (or any length of time beyond the last reporting cycle).

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