One skipped payment results in one delinquency
If you skip one payment on your home loan it can result in a series of billing currencies being reported to the credit bureau. The reason is that the lender always credits payments against the earliest unpaid obligation. This is according to the accounting rules used for amortized mortgages.
For example if you miss a payment in February and then make a payment in March then that payment will go towards the missed payment of February so you will still owe the lender money for the month of March. If the late payment in February was reported to the credit bureau then a late payment for the month of March we reported now. To the time that you make a double payment in any particular month a late payment will continue to be reported which result in several things going to the courts being created on your credit file.
Mortgage contracts where you are allowed to skip a payment every now and then are common in the United Kingdom but have only started appearing in the United States now and even then not very widely available. Unless your contract states otherwise if you skimp a payment but continue to make regular payments thereafter you remain delinquent and accumulate late fee on your mortgage until the skip payment is made a good by making a double payment.
Paying Off a Delinquent Account Improves the Credit Score
Another misconception that many people have is if they pay off their delinquent accounts their credit score will improve. This is not necessarily true. A credit score looks at the stability and reliability of a person to make and timely payment on the money that he borrows. Having a delinquent account will continue to reduce your credit score even though you pay them off to the time that your payment history can demonstrate that you are now making regular payments on all your credit accounts and are being more responsible with your credit. The delinquent account just does not disappear from the credit report when you have paid it off. A late payment will continue to show on your credit report even when you have paid it.
This includes tax liens, bankruptcies, foreclosures and federal court judgments. They will only be removed from your credit report after the stipulated duration is over. But until then they will remain on your record even if they had been discharged or released. However the impact of these entries on your credit report will have a lesser impact on your credit score as time goes by.
Consolidating Balances Improves Credit Score
One more misconception that people have about their credit score is that if they consolidate the balances on their credit cards into a smaller number of credit cards it will help increase their credit score. While it is true that the fico credit score might look more favorably upon a person who has 5 credit cards rather than 20, there is also the credit utilization factor to look at. The credit scoring models does not view high balances on a credit card very favorably. If you’re consolidating your debt from multiple credit cards to a few credit cards then it is possible that you might max of those few credit cards. Coming close to the credit limit on your credit card is an indication of financial distress. So consolidating your debt into a smaller number of credit cards which results in them getting close to the maximum limit result in your credit score decreasing other than increasing.
Authorized Credit Card Users Can be At Risk As Well
Authorized users on a credit card are usually not responsible for making the payments on the credit card. However, if the primary cardholder happens to default and does not pay off his debt certain lenders may deport the authorized user as being late on the card to the credit bureaus as well. They do it in the hopes of the authorized user making a payment on the card in order to avoid his credit score getting blemished. However, this is against the law and you are in no way obliged to make payment on a credit card when you are just an authorized user. In order to fix this you can write a letter to the credit reporting agency informing them that you are only an authorized user and to verify this information with the lender as per your rights according to the fair credit reporting act.
Edit and Income Can Be Separated in a Loan Application
Some people are under the misconception that when they apply for a loan as a couple they can use a credit score of one spouse whereas the income of another. This is not how it works. When lenders our qualifying a couple for an home loan they will look at the combined income as well as the combined with the treating of both the people. If the mortgage on his being applied for by one person than the credit score as well as the income of that one borrower will be reviewed and considered by the lender.