Missed Payments on Credit Reports

The most important detail in the calculation of your credit score is your payment history. This factor alone accounts for 35% of your FICO credit scores. When you miss or make a late payment it can cause significant damage to your credit score, especially if the late payment is recent or severe.

A late payment may remain on your credit report for up to seven years as allowed by the Fair Credit Reporting Act (FCRA). Getting the late payment removed depends on its accuracy.

The FCRA is a federal law that gives you the right to dispute inaccurate information that appears on your credit report. If you check your credit reports and you find that a late or missed payment shouldn’t be there, you can make a dispute to the three credit bureaus: Experian, Equifax, and TransUnion. The best form of contact is by certified mail and you should provide a form of proof that the missed or late payment is inaccurate. When the credit bureaus receive your dispute they have 30 (sometimes 45) days to perform an investigation and they will either delete, update, or verify that your disputed late payment is accurate and inform you of the results of their investigation.

Another situation to look out for is fraud or identity theft. When a late payment appears on your credit reports, it can damage your credit score even if the late payment is attached to an account that isn’t yours.

If you find that there is a fraudulent account (with or without late payment activity) on your credit report, you should visit IdentityTheft.gov to file an identity theft report. When submitting the dispute to the credit bureaus, you will need to include a copy of your ID theft report. Some consumers and even credit repair companies will file fake fraud disputes claiming that the consumer is a victim of identity theft to avoid their liabilities. Filing a false police report or false identity theft affidavit with the FTC is illegal and can cause you serious trouble.

Legitimate late payments are not likely to be removed. Your best shot to have it removed is at the mercy of your creditor to determine whether it will ask the credit bureau to remove the derogatory information. You can take the chance and call or write your creditor to request a goodwill removal. The best chance of getting a removal is if your account has been in good standing. For example, if you’ve had a loan with a lender for several years, you’re current on your loan, and the late payment in question was your first and only delinquency.

Ways to Improve your Credit Reports and Scores

• Pay down credit card debt and keep your payments consistent. When you reduce your credit card balances, your credit utilization rate may decrease as well. Keeping your payments consistent shows that you are consistent with payments. Making large or below minimum payments puts you at risk.

• Ask for a Credit Limit Increase. A higher credit limit reduces your credit utilization rate/ratio and improves your score.

• Become an authorized User. If you have a friend or family member add you to a well-managed credit card as an authorized user, this can help you build positive credit. You should consider asking someone close to you who has a credit card with no missed payments and a low credit utilization ratio.

Avoid future missed payments. Keeping up with your payments helps improve your credit score over time.

Buy Now, Pay Later & Credit Score

Buy now pay later options do not generally affect peoples credit and do not yet routinely appear on most credit reports. The credit bureaus; TransUnion, Equifax, and Experian are each working through this relatively new system and how to report on these services in the context of credit worthiness and a borrowers financial obligations. 

This means that a good record of payment on your buy now, pay later accounts will not help build your credit. It also won’t hurt your credit unless your account is sent to collections. This payment option is popular with younger generations, as they are least likely to have built their credit. For now, it is a good way to practice building your credit. 

How Buy Now, Pay Later Works

When you purchase something online, some stores may offer to divide your purchase into smaller installment payments. Most often into four payments, every two weeks. The most used options are Affirm, Afterpay, Klarna, Paypal, and Zip. They partner with retailers who pay them commission. 

Approval is partially based on data that includes address stability, public records and previous history you may have with the lender and banking information. 

Opportunities for Credit Building

The credit bureaus are working hard to incorporate this method into their formulas. Consumers are using these accounts online more frequently than traditional credit cards and loans, especially young consumers. This could prove to be most beneficial to build up credit. 

There are Risks

Since buy now, pay later loans are new and unregulated they are often paid late, most often by consumers of the age group 18-30. BNPY lack the typical protections you would have under a credit card such as dispute resolutions. The easy access to the application causes the consumer to impulsively purchase and buildup debt faster than they normally would. The consumer may also rack up multiple BNPL accounts on multiple sites that could potentially lead to collection accounts. Once sent to collections, it will end up on credit reports. 

The Credit Bureaus

It has been decades since a new type of credit has been in the market. The BNPY system does not fit perfectly within the two categories they have in place now: Installment loans that span months or years and revolving credit like credit cards. 

The bureaus are working together to find a format that fits and are figuring out a common ground.

Current Plans:

• Experian has announced it plans a specialty bureau to hold buy now, pay later data. Information from the specialty bureau will be “promoted” periodically into the consumer’s core credit file.
  

• Equifax plans to add the information to regular credit reports.
  

• TransUnion has said it will partition off the data on core credit reports.

Build Credit From Every Day Expenses

There is a new app that can help users build credit from everyday expenses. 22-year-old Michael Brougthon is a CEO and co-founder of Perch Credit, a free mobile app that allows users to utilize common expenses like rent and Hulu payments to build credit. 

When Broughton was a college student, he realized how tricky the United States credit system could be. His experience with credit inspired him to create the Perch Credit app, hoping to make the experience of others less frustrating. Before starting his first semester at USC, he was informed that he was $10,000 short on his tuition. His family had no way to cover the costs and they had never had more than $3-4k in their family bank account at one time. His only option was to take out a loan, but he was getting denied due to lack of existing credit history. 

Broughton began doing some research on how to make building credit easier by utilizing common expenses that everyone uses instead of requiring people to go into further debt. 

In January 2021, Brougton launched Perch Credit. The app is completely free and allows users to utilize rent payments or subscriptions such as Netflix, Hulu, and Spotify to build credit. The company holds a mission to help 100,000 people build their credit in 2021. He hopes that users will feel a sense of financial empowerment by utilizing the Perch app. In addition to credit building, the app also provides financial literacy for users. 

Signing up is completely free and does not affect your current credit score. Visit https://getperch.app for more information! 

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