So I was asked, how long do late credit card payments affect your score? You said you paid off the card in full now. Will it affect my chances of getting approved by a home piggybacking off of that question? The same question, but for a six-year-old paid collection bill.
So first, how long does a late credit card payment affect your score? Here's a scary answer, it can stay on your credit report for seven years. Unless you dispute it. Don't dispute it unless you actually have evidence to support the fact that you paid it on time. If you missed a payment, it happened. It's now on the report. There's no way that we can take that off. So what's gonna happen is it's gonna stay on there for a pretty long time. Probably about seven years.
The longer that that late payment stays on there, the longer it ages, and the less of an impact it has on you. So late payments or payment history makes up 35% of your credit score. So a late payment is going to drop your credit score significantly as time goes on. Then the way it affects your score is going to decrease a little bit more and more with each year that goes on.
So it's something that happens. It's great that you paid off the card now having that lower utilization is going to help you with your score, but you're just gonna have to wait it out a little bit.
So credit card lates normally aren't a huge issue when it comes to purchasing a home, especially if it's only just one late payment. You're probably gonna be able to get approved with a conventional loan as long as your score is good. But if not, then you could go to something like an FHA loan to do cuz they're a little bit more lenient on credit history there.
So then piggybacking off of that question, you talked about a six-year-old paid collection bill and I'm not sure if you're talking about paying it, or the late payments necessarily, but I can kind of just talk a little bit about collections and should you pay them off or not? A lot of people talk about, you know, should you pay off collections or not? Because after seven years, that collection account is going to go away.
It's not gonna have any impact on your score anymore. So at the six-year point, then you're kind of weighing the decision of, do you really pay it off or do you wait for it to go away in a year?
Here's my take. It's an ethical issue, right? Are you the kind of person who takes out money and doesn't pay it back? If so, great. Don't pay your collection bill. But to me, I'm the kind of person that if I take money out and say that I'm gonna pay it back, I'm gonna pay it back. Just because it goes into collections doesn't mean it's all of a sudden I get to renege on my promise in the first place, right?
I think this is an ethical issue, and these things bleed into the rest of our life, right? If I'm always trying to find ways to get myself out of promises and go back on my word in my finances and those, you know, in collections then I'm going to end up seeing that pattern through the rest of my life. And that's just not who I want to be.
So when it comes to collection accounts, I see a lot of people talking about ways to get out of it. And, and how do you, you know, take collections to account off of your credit report and everything, but, and honestly, you, you took out money. You said, Hey, I'm gonna pay this money. And the creditor said, great. We trust that. You'll pay it back. And then to all of a sudden say, Nah, I'm not gonna pay it anymore. I just think isn't fair. And isn't an appropriate way to go through life.
So I always would recommend paying off collection bills because you have, an ethical and moral responsibility to pay that money back. But if you don't want to go with that, then you probably, if you just waited a year, that collection account is gonna fall off and not affect your credit report anymore.