3 Ways To Increase Your Credit Score After A Late Payment
Payment history is the largest category in your credit score and most people don’t realize how significant the damage is when payments are late. Payment history accounts for 192.5 points or 35% of your overall score. In other words, reducing the number of late payments you have, will result in a higher credit score.
#1 Revisit Your Budget
One of the most important things to do after a late payment is to revisit your budget. Issues regarding late payments correlate directly with an inefficient budget. Sometimes people have budgets that aren’t solid or don’t have budgets at all and this makes it more difficult to understand your finances. In order to make sure your payments aren’t late, a solid budget is needed to understand your finances which will allow you to see money coming in as well as the money you’re spending.
#2 Understanding How Late Payments Are Calculated
Payments are calculated by the number of on time payments, divided by the TOTAL number of payments. If you don’t have that many accounts, your credit score could suffer tremendously from just one late payment. For example, if you only have 1 account, one late payment out of a total of 12 will result in a 91.6% total for payment history which is considered poor. Payment history is calculated as such: 100% is excellent, 99% is good, 98% is fair, and anything below 98% is considered poor. It is very important to understand how late payments are calculated because payment history accounts for 35% of your overall credit score.
#3 Add Additional Accounts To Cushion Late Payments
Adding additional positive credit history will cushion the impact of a late payment. People have a misconception where they believe having too much credit is a bad thing, however, when it comes to late payments, positive credit is useful and your credit score won’t suffer as bad. It is recommended that you get a secured card, or an unsecured card if you can get approved with recent late payments, but this may be more difficult. There is also services like Self Lender where it acts as a savings account that reports like an installment loan, and you’ll be sent the money after a year. Building positive credit is extremely important because the positive credit will serve as a cushion. It is also important to remember that the institution of credit was created to have credit extended to you! Therefore, having more credit is not an issue, its more so about how you manage it.
#4 (BONUS) Send A Goodwill Letter
Sending a goodwill letter to your creditor after a late payment can be beneficial. Depending on your creditor, they may or may not be willing to do so, but if you have only had one late payment, your chances in having that payment removed is greater than if you were to have several late payments.