Late bill payments can devastate credit report

Los Angeles Times

Q: I hired an accountant to pay my bills while I was overseas on a work contract. Unfortunately, he passed away and I didn't find out about it until I got back, and I returned to find that I was delinquent on all my bills for nearly six months.

I have paid off the bulk of my debt, which was quite a chunk after all the late fees and high interest rates the lenders charged. The collection agencies weren't interested in why I was late.

Before this happened, I worked very hard to have good credit because I want to buy a house. Is there any way to redeem my credit report?

A: Late payments have a devastating effect on credit scores, the three-digit numbers lenders use to gauge your creditworthiness. You can redeem your credit, but it will take time.

You're right that collection agencies typically don't care why you were late. They hear lots of sob stories, but their business is collecting the maximum amount they can.

Most collection agencies are, however, willing to negotiate. If you were able to pay off all or most of a debt with a single lump-sum payment, you may have had enough leverage to demand that the agency remove the collection action from your credit reports in exchange for your payment. You would want to get their promise in writing before you sent them any cash.

Removing a collection account won't erase the past. The original creditor would still show the late payments and the charge-off, and credit-scoring formulas weigh that information more heavily than what a collection agency has to say. But getting a collection action taken off your report can still help your score.

Fortunately, the score weighs recent behavior more heavily than past behavior, so the effect of your delinquencies will fade over time as long as you get religious about paying your bills promptly from now on.

Consider setting up automatic payments so that your bills are paid electronically from your checking account each month. If you'll be somewhere where you can't monitor your accounts, you might want to give a trusted friend or family member your passwords so they can make sure everything is getting paid -- and can make transfers between accounts as needed.

It would be smart to have a power of attorney for finances drawn up as well, so the person you choose would have legal authority to make financial decisions on your behalf. You can go to an attorney or use software provided by a self-help legal publisher such as Nolo Press.

Other behaviors that will help: paying down your debt, especially your credit card debt; keeping the balances on your cards below 30 percent of your credit limits; getting an installment loan, such as a small personal loan or auto loan, and making payments on time. The rates you'll pay will be stratospheric for a while because of your recent credit history, but having and using credit responsibly will help your score recover and allow you to qualify for better rates in the future.


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