We often hear credit horror stories, where folks run into a series of troubles (perhaps the loss of a job, or an illness, or a divorce), leading to a bankruptcy, or perhaps the foreclosure of a home, or tax liens and court judgments. Each of these events is not only personally traumatic, but can reduce your (or your client’s) credit score by hundreds of points.

However, the issues that often get you (or your clients) into trouble with credit, are often not quite so severe, but just as damaging. Perhaps you or your client had some deadlines at work or school, or was traveling, with limited computer access. Maybe, money was just a little tight. As a result, a credit card bill, or perhaps an auto loan, went unpaid. FICO scores took a major hit.

This can make future home ownership extremely difficult, and potentially adding thousands of dollars to the cost of auto loans, credit cards, and car insurance, every single year. For those of you who work in the world of mortgage lending, residential real estate, and home and auto insurance, and whose clients we often assist, these sorts of credit items can make closing a deal nearly impossible, or at least, rather difficult and unpleasant .

Let’s take a look at how late payments impact our credit, and what can be done to remove them. As always, please feel free to contact us here at Tier One, and let us know how we can help you and your clients better understand and improve credit.

30 Days Late

A single 30 day late payment, can reduce an otherwise strong (let’s say 780) FICO score, by as much as 90 to 110 points, placing you (or your client) in a completely different category, when it comes to rates and terms, particularly on mortgage and auto loans. This could cost you thousands of dollars, over the years.

Of course, if you already have less than perfect credit history, you will not see as large of a reduction in your credit score. With a 680 FICO score, and a few late payments in the past couple of year, you/your client might see a drop of 60 to 80 points. For those with scores below 600, FICO scores might only drop by 10 points or less.

Paying an account 30 days late, tends to impact your FICO score mainly for the first 24 months after the late payment occurs. After that, the impact on your score is negligible. However, even for those with good credit, during the first 24 months, this can create severe difficulties when applying for loan, particularly mortgages.

Most lenders (including many of you), are unable to underwrite loans with late payments within the past year or two, given that such borrowers as a recent, prominently increased credit risk. A late payment, even on a credit card with a small spending limit, can serve as a red flag for lenders.

60 Days Late

Paying 60 days late with a 780 FICO score is almost certain to drop your score by over 100 points, possibly as much as 120 points. With a lower FICO score, as discussed earlier, the impact will be somewhat smaller, but still larger than a 30 day late (someone with a 680 FICO might see a drop of 70 to 90 points).

Just like paying 30 days late, a 60 day late tends to impact credit scores primarily during the first two years after it occurs. After that, the impact will be rather minimal, however, as discussed earlier, obtaining a mortgage during this period can be challenging.

90 and 120 days late

Paying 90 or 120 days late on an account, will have a severely damaging impact on your credit report, for the entire 7 years where it remains on your credit report. A single 90 day late on an otherwise very strong (again, let’s say 780 FICO score), credit report, will almost certainly reduce your FICO by over 100 points, possibly as much as 130. Just as with 30 and 60 day lates, 90 and 120 day lates have less of an impact on already damaged credit reports, but they’ll still likely reduce a 600 FICO score by 30 points or more.

120 day lates are not only harmful to credit scores (more than 90 day lates, as you might guess), but they also carry a strong possibility that one’s account will be charged off, meaning, written off as a loss, by the company which issued the card to you or your client.

A charged off account is at risk of being placed for collections, which is even more harmful to credit reports. Collections and chargeoffs also carry legal risk, in that an account issuer, or collector, might sue you or your client for the amount owed, leading to wages being garnished, bank accounts frozen, not to mention,  costs and interest, which can add thousands of dollars, to the original debt owed.

How To Handle Late Payments On Credit Reports

If you, or your client, has a late payment on a credit report, it is possible to remove this item. How? The Fair Credit Reporting Act (FCRA), a federal law which governs credit reports, says that anything which appears on your or your client’s credit report must be accurate, verifiable, and timely. If it is not, it must be corrected or removed.

Quite often, the requirement of accuracy is not met; in fact, a 2013 study from the Federal Trade Commission (FTC) found that 1 in 4 consumers identified errors on their credit reports, while 5% of credit reports had errors serious enough to have a significant impact on the rates they might pay for mortgages, auto loans and more. It is possible that you, or your client never actually paid late, and thus are a victim of mistakes by credit bureaus and data furnishers.

What’s more, even if you or your client did pay late, there’s plenty of room for removing these payments. Under the FCRA, anything which appears on a credit report must be “maximally accurate.” In the context of late payments, this mean that if someone is listed as being 90 days late, they must also have been marked as 30 and 60 days late. Account balances, numbers, and dates must also be accurate.

In terms of verifiability, credit bureaus, and creditors, must be able to prove whatever they’ve placed on a credit report. This can include providing documents which prove payment history, as well as required disclosures and notices prior to reporting late payments. Quite often, they are unable to produce this information, leading to late payments being deleted.

Lastly, anything which appears on a credit report must be timely. Under the FCRA, most credit items can only stay on a credit report for 7 years (except for certain types of bankruptcies, which might remain on a report for up to 10 years). Due to software and accounting errors, these rules are often violated.

At Tier One Credit, we apply our knowledge of the FCRA and other laws, to remove all types of negative items from credit reports, while using our understanding of the FICO scoring process, to help anyone and everyone, enjoy the best credit score possible. Let us know how we can be of help to you and your clients!

Shiva Bhaskar is an experienced consumer credit attorney, and the cofounder of Tier One Credit (www.tieronecredit.com), a credit consulting firm dedicated to helping every American enjoy the best credit score possible. Shiva can be reached by email at [email protected].