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No one wants to have a late payment show up on his / her credit report. Nevertheless, it happens. Due dates or recent charges are easily forgotten and before you know it, a 30-day late payment appears on your credit report. Your FICO credit scores suddenly decline and you are left wondering, “What factors from a late payment drop your credit scores?”


FICO state that 35% of your FICO® scores are based on payment history. There are several weighing “Late payment” factors that will decide the total drop to your FICO scores. Do you know them? Unfortunately, “experienced” credit counselors and loan officers are largely unaware of these factors that weigh down your FICO scores from a late payment. Let’s identify them. There is some complexity here.


There are two consumers who both have a 30-day late payment. The drop to their FICO credit scores will be different because it is based on several weighing factors. One could see a drop of 20 points after a late payment while a second consumer could see 120-point drop from a late payment.


These late payment factors are

  1. The amount past due
  2. The outstanding balance
  3. How late was the late payment
  4. How recent was the late payment
  5. The number of accounts that have had a late payment
  6. How recent was the loan opened
  7. The utilization ratio of the loan / line of credit.


The Late Payment Factors


Obviously, any loan with an amount past due will drop FICO scores. A loan with an amount past due of $10 will have less impact to lower scores than an account that has $2,500 past due. The greater amount past due, the lower the FICO scores.


A late payment on a mortgage will almost always lower FICO scores more than a late payment on a $100 credit card. The reason? The balance on the loan that had a late payment helps determine the extent FICO scores will decline. The larger the balance – such as an auto loan or mortgage, the lower the FICO scores from a late payment.


How many payments past due is another determining factor into your FICO scores? A 30-day late payment (or 1 payment behind) will drop FICO scores -- say 40 points. A 60-day late payment (or 2 months behind) will drop FICO scores more than a 30-day late payment – say 80 points. A 30-day late payment could drop FICO Score 40 points while a 60-day late payment could lower FICO scores 80 points. (This is a hypothetical example to show the difference in impact from a 30-day and a 60-day late payment).


If there is only one account with a late payment, the drop to FICO scores will be less severe than if there are two accounts with a late payment. The number of accounts with a late payment is a real factor in FICO scores. If most of your accounts in your credit report have had at least one 30-day late payment, the drop to your FICO scores will be substantial for an extended period of time – up to seven years.


Has the loan with a 30-day late payment been opened two months or ten years? Any newly opened account with a late payment will drop FICO scores more than an account that has been opened for ten years and has a late payment. New accounts have less payment history and are considered more risky. Any new loan with a late payment will drop FICO scores a lot more. A new loan is anything considered opened within the last 12 months.


Finally, the utilization ratio also plays a factor in determining the drop to FICO Scores. You have a credit card (Credit Card A) with a $1,000 credit limit and a balance of $1,000. A 30-day late payment will lower FICO scores far more than if a second credit credit card only had a $50 balance (Credit Card B). Credit card A has a utilization ratio of 100% while credit card B has a utilization ratio of only 5%. Any late payments on credit cards with high utilization ratios will drop FICO scores much further. There is much more risk of default from a higher utilization ratio.


Two Different Examples


If Tom has a late payment on a credit card with a current balance of $100, the credit limit is $10,000 (utilization ratio of 1%) and the late payment occurred six years ago, the drop to the FICO scores will be minimal – say 20 points.


If April has a late payment of $1,500 that is currently past due, on a loan amount of $250,000, and it is the only loan in her credit report that has a late payment, along with the fact the loan was just opened two months ago and the utilization ratio is 100% (Initial loan amount $250,000 with the current balance of $250,000), and two other loans are just reporting their first 30-day late payments, the drop to her FICO scores could be upwards of 100 to 120 points.


If you have late payments on your credit report, you can create a better strategy to counter some of the drop to your FICO scores. Knowing how FICO determines the drop to FICO Scores can help all consumers know what to do when there is a late payment reported on your credit report.   

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