If you’re struggling with debt, there’s a chance you’ll start missing payments. Maybe you have a limited income, so you’re missing credit card payments because all you can afford is to pay the mortgage. When you have to make choices, something has to go unpaid.
Often, a short-term nonpayment or a missed payment won’t be reported. For instance, if it’s under a month late, the lender may contact you seeking the money that’s due, but they’ll still give you a chance to get current on those back payments. There’s always a chance that it’s just a miscommunication error, that a check got lost in the mail, or something of this nature.
But if the missed payments continue, then they do begin to impact your credit score. Repeated missed payments or late payments can cause your score to decline. If you are behind by 120 days or more, then your creditor may start exploring other options, such as sending the debt to collections and preventing you from borrowing any more money in the future.
The importance in the context of bankruptcy
This is an important thing to keep in mind because filing for bankruptcy also lowers your credit score. One reason why people sometimes hesitate to file is that they think their score is going to decline and it’s going to have a long-term impact on their financial opportunities.
But the reality is that missing payments is already lowering your score. While filing for bankruptcy will do so as well, it also clears the debt so that you can begin rebuilding that score—something that is impossible when you’re just missing payments every month.
This is why it’s so important to understand exactly what steps to take when facing overwhelming debt.
