Missed A Payment? Rocket Money Can Help!

Missing a payment doesn’t feel great, but it happens to the best of us – to the tune of $424 billion, according to the New York Federal Reserve. The important thing for your financial future is that you get back on track as soon as possible. This article explains why you want to get current on payments sooner rather than later, as well as some ways that the Rocket Money^SM app can help.

But first, let’s cover some basics.  

Credit And Payment History 101 ‍

Having a strong credit score is important for several reasons on your financial journey. Not only does your credit score impact whether you get approved for a particular line of credit, like a credit card or mortgage, but also how much that credit will cost you over time by impacting your interest rate and/or repayment period. In other words, even if you're approved for a line of credit, a low credit score can still cost you more money over time than having a better one.

There are several different factors that make up a credit score, and how they are weighted depends on whether a lender is using a FICO^® Score or VantageScore^®. Rocket Money uses the Vantage 3.0 scoring model, developed by the three main credit reporting agencies (Experian™, Equifax^®, and TransUnion^®), which considers the below six factors. Regardless of the scoring model, payment history is always the highest-weighted factor, comprising 35% – 40% of your credit score.

Factors That Impact Your Credit Score

No matter the scoring model your lender uses, your score is determined using the below factors, though they may be weighted differently depending on the model:

·      Payment history (40%): are you meeting your minimum payments on time?  

·      Credit history (21%): how long you’ve had credit and the types of credit you have (like credit cards, mortgage loan, auto loan, etc.) 

·      Credit utilization (20%): how much of your available credit is used

·      Balances (11%): the amount of debt you have

·      Recent credit activity (5%): recent credit inquiries or lines of credit you’ve applied for  

·      Available credit (3%): the amount of credit you have available to you to borrow  

What Is A Good Credit Score?

Now that we know the factors that impact your score, what is a good credit score?

Using the Vantage model, a credit score of above 661 to be considered “good” (661 – 780) or “excellent” (781 – 850). Anything above 600 is considered “fair.” Those with higher credit scores are more likely to qualify for better loan terms and interest rates than those with lower scores.

A good habit to get into is to check your credit report on a regular basis. It will give you an easy health check for the different aspects of your credit profile, and can help you keep tabs on missed payments, fraud, etc. For Rocket Money users, you can view your full credit report and easily spot missed payments in the Credit Score tab on your dashboard.

Why It's Important To Get Back On Track ASAP

Now that you’ve got the basics down, here are three reasons it’s important to catch up on delinquent payments sooner rather than later.  

Reason # 1: Continued missed payments are harder to recover from.

Missing one payment isn’t the end of the world – it likely won’t have a huge impact on your credit score if you can make your payment within the next 30 days. But, letting that extend to 90 or 120 days can have a drastic impact on your credit score, and could potentially take years to recover from.  

Here’s the breakdown:

·      30 to 60 days past due (DPD): While a single late payment will only result in a slight drop in your credit score, consistently being late will decrease lenders’ confidence in your ability to pay on time. Further, the more DPD the harder it is for your credit score to bounce back, which is why you want to catch up as soon as you’re able.  

·      90 DPD: According to Credit.com, a payment that is more than 90 DPD can drop your credit score up to 180 points. That’s enough to take your rating down an entire level (from good to fair, or fair to poor, for example). It can also take you years to recover once your account is noted as 90 DPD.  

·      120 DPD: After 120 DPD, a lender may note your account as a"charge off," indicating a loss and the expectation that it will not be repaid. If so, this mark will be on your credit report for up to 7 years and still holds you accountable for the payment. Even if the lender doesn’t report it as a charge off, they may report it to collections, which would also be marked in your credit report.  

In summary, the more days past due a payment is, the larger and longer lasting the impact.  

Already have a charge off or collections noted on your account?  

Unfortunately, paying off the debt now may not have much of an impact, but getting the negative mark deleted will. Luckily, some lenders and collectors are willing to delete the negative mark in exchange for your repaying the debt, even if it’s in collections. If you decide to contact your lender with this request, make sure to get something in writing. While they do not have to agree to the arrangement, it’s worth a shot to improve your credit score. A credit counseling agency may also be able to help you in contacting lenders through a debt management plan.  

Reason # 2: Your payment history may impact more than your credit, such as housing and job opportunities.  

Did you know that a potential landlord or employer might run a credit check (with your consent) before deciding to rent you an apartment or hire you for a job? Your credit may also impact other things you may not have guessed, like auto insurance rates in most states. This means that even if you don’t intend to apply for credit in the future, your credit history is still important. Given that payment history makes up 35-40% of your credit score (depending on the scoring model), it’s one of the most impactful and immediate changes you can make to improve your credit history.  

Reason # 3: Negative credit information stays on your report for up to seven years.

Unfortunately, late payments stay on your credit report for up to seven years after they are originally marked past due, even once they are no longer delinquent. Luckily, a 30-DPD payment on your credit report won’t have much of an impact, but later delinquencies will stick around. Knowing this underscores just how important it is to get your accounts paid and current as soon as you can to give your credit the time it needs to improve.  

Need Help Making Your Payments?

Not sure where to find the extra money to meet your missed or minimum payment? Here are a few things you can try to help get ahead:

·      Find some extra savings: Rocket Money can help you cancel a subscription or negotiate a bill to free up some extra cash to put towards your debt.  ‍

·      Stay on top of your budget: Set up a budget to help allocate cash towards your debt payment and track spending moving forward. ‍

·      Consider debt consolidation: We recommend checking out Rocket Loans^SM to see if they may be able to consolidate or reduce your monthly payments.‍

·      Consider student loan refinancing: Rocket Money’s partner Credible may be able to lower your interest rate and/or monthly payment through student debt refinancing.‍

If you still can't keep up with your minimum payments, consider contacting the National Foundation for Credit Counseling, a nonprofit agency that may be able to work with your lenders and come up with a debt management plan to get you back on track.  

The Bottom Line

Understanding how your credit score is calculated and the impact a late or missed payment can have will hopefully help you stay on track or seek help before your accounts are 120 or more days past due. To start tracking your credit score, download the Rocket Money app today!