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How credit scores are determined and how late payments affect it

Once you turn 18, you are deemed to have reached a certain level of maturity necessary to not only enter contracts, but manage your own finances as well. However, not everyone is fortunate enough to have had good financially-responsible role models to emulate. Because of this, many young consumers make poor decisions that can leave long-lasting residual effects.

Attempting to secure credit to either make a purchase or enter a service contract is one of those instances where you may end up dealing with the repercussions of making poor financial choices. For example, in assessing your creditworthiness, your FICO score is the number that a creditor or service provider will pull as part of a consumer report. While a number of factors go into determining your score, late payments have the strongest potential to adversely impact your score.

The recency of late payments, how severe they historically have been and how frequently they have occurred can each individually, or in aggregate, affect your score. As for the tardiness of payments, they are categorized as 30, 60, 90, 120 and 150-day delinquencies or charge-offs. Debts that have not been paid and are charged off by a creditor may result in particularly negative implications.

When it comes to debts still listed as being late, you still have the potential to have those modified. However, once a debt is placed in a charge-off status, it will still appear on your credit report, even if you eventually settle the debt.

Given that your FICO score is largely determined by your history of payments, it's important that you communicate any payment obstacles to your creditor early. Reporting a job loss or medical crisis might qualify you for either a reduction or forbearance.

If you have a creditor unwilling to negotiate, you should try to get the payments caught up before the debt is charged off. Failing to do so with leave you with an inability to otherwise resolve the issue once it goes to collections.

If you have fallen behind in paying your bills or otherwise are struggling to pay down your debt, an experienced Tennessee bankruptcy attorney can provide advice and guidance.

Source: MyFICO, "What are the different categories of late payments and how does your FICO score consider late payments?," accessed Feb. 21, 2017

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