Unexpected Ways You Are Affected by Late Payments

We all know the typical repercussions of seriously late payments: your credit score drops, the credit bureaus are notified, it can be difficult to get approved for a mortgage, and late fees are charged.

To make matters worse, after more than 120 days, your debt gets sold to a third party collection agency. But what else can happen?

Your interest rate will increase

If your payment is late by 60 days or more, aside from being penalized with late fees, your interest rate will likely rise to the default rate, which is the highest interest rate creditors can charge (usually reserved for penalties). Your balance can quickly become higher with these extra charges piled on to what you already owe.

However, from that point forward, if you're able to establish a timely payment pattern for the next six months, your card issuer is required by law to reverse your rate to the pre-penalty rate.

Your account may get closed

If you haven't made payments for 60 to 90 days, your card issuer will suspend your charging privileges but keep your account open so you can get back on track with your payments. If you do, they'll allow you to start charging again.

However, if you don't begin repaying what you owe, your credit card account will indefinitely be closed after 180 days (or six months). This cancellation will negatively affect your credit score by impacting your credit utilization.

Other cards will be affected

If your credit history worsens, your other card issuers may close your accounts. A recent change in credit card law banned the practice of universal default -- when a card issuer increases your interest rate due to a late payment issue with a different credit card company.

However, card issuers still reserve the right to cancel your account if they feel your payment patterns are negative with other cards.

Your house, rent, and job can be affected

If you manage to get back on track with payments, the damage done to your credit history won't be extreme. However, if you haven't paid the minimum required for 90 days, this will damage your credit score significantly and stay on your record for up to 7 years. When this happens, other aspects of your life may be impacted too.

For example, some jobs require criminal background and credit checks before they make an official offer to a candidate. These checks are typically not done until the last stages of the interview process, so it can be frustrating for good candidates to be rejected due to poor credit history.

Additionally, if you have bad credit, you may have trouble convincing a landlord to let you rent an apartment, as landlords typically require a credit score of 650 or more prior to accepting someone as a tenant.

In the case of mortgages, someone with bad credit will have a much higher interest rate than a person with good credit. Interest rates vary from 4 percent (for those with above-average credit), to 7 percent (for those with poor credit).

Since the average mortgage is a little over $150,000, 7 percent interest comes out to an extra $102,000 over the length of the mortgage!

Forget having a cell phone

Cell phone companies check your credit, and if your credit score is poor, you may only be able to get a prepaid phone, because it's likely that no provider will give you a contract.

Utilities

Utility companies also check your credit, and if your credit history is bad, you may be required to pay a security deposit to get service in your name. Regardless of whether you've always paid your utility bills on time, a bad credit history can represent a threat to companies.

Higher insurance premiums

Insurance companies consider low credit scores to be linked with a higher number of claims. Regardless of whether it's true or not, companies charge these customers a higher premium, based on that belief.

Difficulty starting a business

It's common knowledge that banks are reluctant to give loans to a person with shoddy credit. If you're looking to start a new venture, it'll be difficult. Every business needs funding to get off the ground, and getting the start-up money you need may be impossible.

From a scoring perspective, one 90-day late payment is as destructive to your credit score as a bankruptcy filing. That single late payment may earn you the status of a "repeat offender," and you'll be a risk to creditors because of it.