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This is part two, in a six part series, on how to be an expert of your credit. A good credit score is important for more reasons than just obtaining new credit. These days, it can factor into everything from landing a new job to getting the best deal on your insurance policies. It’s more important than ever to avoid late payments on your mortgage!

A 100 point drop for one late mortgage payment? It’s true. A single 30-day-late mortgage payment can cause your score to drop by as much as a hundred points. Credit scoring algorithms vary based on many factors, and in some instances, the damage may be even greater and last for years.

The costs accumulate. At the time, a single missed payment will cost you only a late fee, but the expense really adds up on your next loan or missed opportunity. Low credit scores typically mean a higher rate and cost. Higher rates can mean hundreds of thousands of dollars of extra expense over the life of a loan.

Missed payments are usually unplanned. Usually, events beyond our control lead to late payments, such as an accident, illness, job loss or family issue. At other times, carelessness or a hectic life may result in a forgotten payment.

What can you do?

Plan for the unexpected. Maintain an emergency cash reserve account equal to at least 3 months of living expenses or more.

Automate. If you’re prone to forgetting or don’t have a scheduled time to sit down and pay bills, set up auto payments through your checking account or put a perpetual reminder on your calendar.

Little other than time will decrease the negative impact of a late payment, so prevention is the one sure remedy. If you don’t already have a good system in place to assure timely payments and are not sure what’s best, reach out anytime. We’ll be happy to help set up a plan that’s right for you.

As always, we are happy to help here at Envoy; no question is too big or too small. Just contact me to get started.

How is your credit score calculated?

Your_Credit_Score_chart

Understanding the makeup of your credit score is the first step toward managing and improving it. Below is the first of a six part series on how to be an expert of your credit. 

As you might expect, payment history is the most influential component in your credit score, followed closely by the amounts you owe. To lesser degrees, the length of time you’ve utilized credit, the number of new accounts or inquiries you have, and the various types of credit accounts you hold also impact your score. Overall reporting also looks at how these factors relate to each other in the context of your personal usage.

To help achieve or maintain a healthy score, always remember the following:

Have a system to assure your bills are always paid on time.

Avoid late payments or the excessive use of credit by maintaining a cash “cushion” to pay for unexpected expenses. Don’t “max out” your cards. It’s better to have a high credit limit with a low balance.

Never close old accounts as the age of these can actually help your score.

If you shop for credit, do so in the shortest time period possible to minimize inquiries counted against you. To read more about why this matters, click here to get some notes straight from the credit bureau.

Don’t be afraid to use credit. You need several accounts in order to have a credit score. Just be sure to keep corresponding payments within your means.

If you have established credit, don’t open new accounts solely for the sake of earning a discount on a new purchase. In the long run, you may spend more than you save up front by paying higher interest rates due to a lower score. Having more accounts also increases the task of making payments and the possibility of missing one.

If you have questions about managing your credit, give me a call; I’m happy to help.