Do Not, We Repeat, Do Not Miss Your First Loan Payment

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Nobody jumps for joy when the bills come in the mail. That’s a fact! But, the reality is that when we borrow money from a company or government, we make an official agreement to pay it back with a set number of payments over time. We don’t end up with bad credit scores or with negative marks on a credit report simply because we borrowed a lot of money. We only end up hurting our credit profiles if we don’t abide by the repayment schedule we agreed to in the first place.

Student loans, personal loans, credit cards, auto loans, mortgage loans – all of these come with an agreed-upon contract. Signing the contract does not hurt your credit, but breaking the contract does!  

Now, of course, there are plenty of reasons why people may not be able to make a payment. Especially now when people may be struggling during the pandemic. That being said, you must still communicate with your lender. You should never miss a payment without having attempted to work something out beforehand.

Companies that lend consumers money are not out here to punish us for struggling. In light of Covid-19, most lenders are making exceptions for borrowers who are struggling to make payments. But, it’s 100% your job to let them know when making a payment is tough for you. That way, you can open up a dialogue about how you can get help with your loan payments.

Here are 3 major reasons why you need to make sure that you do not miss your first loan payment, along with its consequences. 

Payment History is worth 35% of your credit score 

In high school and college, lots of teachers and professors give out a syllabus. This guide usually tells you exactly what you need to do in order to get an A in that class. Your credit score works the same way. There are five key factors that make up your credit score:

  1. Payment History: paying your bills on time
  2. Utilization Rate: the amount of debt you have outstanding compared to your total available credit
  3. Length of Credit History: the average age of all your credit accounts
  4. Mix of Credit–:the number of different types of credits you have
  5. New Credit: how many applications for new credit you have in a year

The most important one, a.k.a the one that affects your credit score the most? Your payment history. This makes up 35% of your credit score. Essentially, you’ll need to pay every bill on time to get the best score possible in this category.

Making a late payment can hurt your credit score by over 100 points! The key here is that if you do miss one payment, you need to do everything you can to ensure that it doesn’t get reported to the credit bureaus. To do so, you can pay it off within the grace period to avoid it being reported. The grace period is usually 10 days. You’ll still accrue a late fee, but it won’t get reported as a negative remark to the credit bureaus. 

Two words: Late Fees

If you’re struggling for ANY reason to make a minimum payment on your loan, it’s clear that you should avoid spending any more money than you’re already responsible for repaying. Your dollars are precious, and it’s even more previous during tough financial times. Start by looking over your lending agreement. After that, calculate the total amount you will need to pay over the term of the loan. After crunching these numbers, make a strict commitment to pay no more than that amount in late fees, or any other penalties. It’s important to avoid late fees so that you don’t end up overpaying when you borrow. 

You’ll lose good faith with your lender

Good faith is a general presumption between you and your lender. Since they’ve held up their end of the deal by approving your loan, there’s a mutual trust that you’ll honor the agreement by making all your payments on time and in full. 

Lenders are generally willing to work with borrowers, especially if it means that they are more likely to get some money back from you. The last thing a lender wants is a borrower who defaults on a loan. It’s the worst thing for them because it means that a) they lose the money that they lent you b) they may need to spend more money pursuing you in collections or possibly involving the court. 

Say you missed a loan repayment for the first time, you can generally call up the lender to explain the situation and ask for them to overlook it this one time as it’s your first offense. 99% of the time, companies will forgive the late payment and cancel the late fee. But remember, they’ll only do this in good faith once.

However, if you get into the habit of making late payments, then you will certainly not get a pass from them at all. If you waste that one chance to get the late fee waived on your FIRST loan payment, then you’ll need to be sure that the remainder of your loan repayments are perfectly on time, every time. Otherwise, you’ll see your credit score drop significantly. 

Remember, missing just one payment won’t destroy your credit report or score. But, it’s important to make sure you start off strong with making payments on time and in full. This will set you up for success by generating a high credit score and will put you in good standing with your lender. 

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