How Does a Slow Payment Affect a FICO Score?
FICO scores range from a low of 300 to a high of 850. Higher scores generally mean that better interest rates are available to you. However, lenders aren't the only people who check FICO scores. Landlords and even some employers may do so as well. Slow payments, also known as late payments, count as negative items on your credit report, and will therefore affect your FICO score.
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Scoring Factors
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The FICO score measures five distinct areas on your credit report. According to MyFico, 35 percent of your score reflects how good you are at paying your bills, 30 percent reflects how much debt you have, 15 percent measures the length of your credit history, 10 percent measures how much new credit you have applied for recently, and the final 10 percent reflects the mix of credit on your report (e.g., installment loans and revolving credit).
Slow Payments
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How reliably you pay your bills accounts for the largest percentage of your FICO score (35 percent). Paying your bills late will damage your score. According to Bankrate, one 30-day late payment can lower your score by 60 to 110 points. The later your payment, the more damage it does to your FICO score. Once your payment is more than 120 days late, it becomes a charge-off, which means the creditor writes it off as a loss. This FICO percentage also takes other derogatory payment data into account, such as judgments, repossessions, bankruptcy and foreclosure.
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Improving Your Score
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If your FICO score is low due to late payments, paying your bills on time will help to increase your score. Your score is not a static number; it changes as the data in your report change. Since FICO gives more weight to newer payment history, consistent on-time payments will have more impact on your score than older, slower payments. A higher score can lead to better interest rates on credit cards and an improved chance of loan approvals.
Accurate Reporting
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Since your FICO score comes from data in your credit report, you should make sure your report is fair and accurate. Under the Fair Credit Reporting Act (FCRA), late payments can only remain on your report for up to seven years. If you have an older slow payment on your report, you have the right under the FCRA to dispute that item with the credit bureau. You can file a dispute online at the bureau's website, or by registered mail; the bureau has 30 days to investigate and, if necessary, make corrections.
Warning
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Avoid paying credit repair companies to fix your credit. Although they may promise to remove items from your report and increase your FICO score, the FCRA gives you the right to correct errors on your report at no cost, and it does not require credit bureaus to remove accurate negative items from your credit report.
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