Good Credit Not A Luxury

by Jill from Southern California, USA

Regarding Good Credit Not A Luxury: In today's world, good credit is not merely nice to have. It is "a must have". Your credit scores is a reflection of your promise to pay back what you owe.

It not only affects you when you go to get a mortgage but many times when you go to get a job.
Employers use it as a measure of reliability, and given the state of the economy and the scarce jobs, good credit is more important than ever.

Tell you a story about what my mother did to me when I was very, very young. I was very excited about buying some toy. I had not received my allowance that week but "really, really" wanted the toy. So, I asked mom if I could "borrow" 5 dollars. she gladly lent me the money but I forgot about it.

A week later she came to me as said "where is my 5 dollars?"

I looked at her strangely and wondered what she was talking about because in my mind I thought of the 5 dollars as something she was giving to me because she was a great mom and wanted me to have the toy.

She looked me in the eye and said, "I may give you $500, but if you "borrow" 5 dollars I expect it back. So where is my money?"

She went on to say, "Always pay back what you owe and don't make the person who lent you the money have to ask for it. It is not good for the relationship."

Lesson learned! Jill

Kate Answers: Good Credit Not A Luxury

Hi Jill, So glad to hear from you. I missed your correspondence.

You had asked how much time someone has to call a creditor before a late payment becomes a derogatory mark on their credit history. My experience with credit is limited to mortgage lending.

Even at that, I am not sure if this is the same across the nation. My experience dealing with most mortgage companies who serviced the loan was as follows:

The "friendliest S and L" gave a free pass on the first late mortgage payment many years ago. They did not advertise this and I never recommended a homeowner test the policy to see if indeed it worked.

Incidentally, that bank, actually an S&L, is history, in a consolidation about 10 years ago. In fact in a bit of bank trivia, the institution who grabbed up that S&L and others 10 years ago has now also gone by the wayside in the current upheaval.

Back on topic, let's say a mortgage is due on the 1st. Technically after the 1st, it is late but a grace period extends until the 15th. Going past that deadline costs a late payment fee. Going past the 30th means a 30 day late reported to credit bureaus.

My experience is that most borrowers think they have more time, not less, before their credit is adversely affected.

The exception is the highly responsible, afraid of mortgage declination due to a 30 day late - 16 years ago. Gotta love 'em! Kate

PS It just came to mind to mention that mortgages are paid in arrears. That means, unlike a car payment, the mortgage payment due March 1st is paid in arrears to cover February's interest.

So next time you refinance and someone suggests you are getting one free month with no mortgage payment, remind yourself that 30 days of interest gets tacked onto the home loan and will meet back up with you when you sell the house or refinance again.

Which is why I say there are no free lunches.

Sincerely,

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