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Missing Payments & Your Credit Score

Missing Payments & Your Credit Score

Missing payments on the money you borrow comes with its repercussions. After all, when you apply for a loan you sign a binding contract with the lender. As a legal document, you are required by law to submit to the contract’s terms and conditions. Failing to do so may come with consequences, and what those consequences are will be outlined in the contract.

If you miss too many payments or end up defaulting on your loan and your loan is secured against some sort of asset, it is possible that the lender will repossess said asset. This notion applies to furniture loans, car loans, and even mortgages. Needless to say, not all individuals that miss payments end up with foreclosures or lose their assets. In many cases, individuals fail to make their payments because they are in between jobs, as an example.

When you miss a payment, the immediate consequence is that a note is left in your credit file. This means that if you try to apply for another loan the lender will see that you have missed some of your previous debt obligations and you chances for qualifying are hurt. Moreover, your credit score takes a hit. Your credit score is calculated by a number of different factors (for more information on this, take a look at our credit learning section), the two biggest chunks of which are debts and history of payments. In other words, the biggest portion of your credit score is calculated by your total debt and how effectively you’ve been paying it down. From this we can gather that missing payments will damage your credit score, and that’s something you should be taking very seriously.

Besides your credit score being damaged by missing payments on your debt, you may also be subject to pay certain fees every time you miss a payment. Not all loans stipulate this, however many do. For example, missing payments on a payday loan comes with various administrative and processing fees which are just added on to your bill. When it comes to credit cards, missing payments means paying 20-30% interest on what you owe. Furthermore, if you choose not to pay back your loan, it is possible that your debt could be sold to an abusive collection agency. This will damage your credit score further still, and you will be subjected to calls and possible harassment from the collection agency.

For more information on this subject, click here.

Our Advice

As a rule of thumb, your total debt payments shouldn’t exceed 35% of your total income. More broadly, just make sure you are living within your means! To avoid paying for today’s mistakes tomorrow, it is important that you are responsible with the money you have and that you are responsible with the money you borrow. Hurting your credit score at a young age can block you from obtaining a mortgage, purchasing a home and growing your wealth in the future.

Spend responsibly!

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Posted by in Debt
Caitlin graduated from Dawson College in 2009 and completed her Art History degree from Concordia University in 2013. She started working as a freelance writer for Loans Canada right after University, eventually working her way up to Chief Content Editor. Her work has led to a large expansion of the company’s content department and she manages a staff of talented writers who are passionate about educating Canadian consumers about credit, debt, and all things personal finance. With over five ...


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