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Prompt-payment habit nice to have on record if you should slip up


For the last 10 years I've been self-employed as a free-lance editor and writer. Although a free-lancer's income is a roller coaster, I've maintained a good record of timely payments on my only two sizable debts: my student loan and my mortgage.

The last two months, however, have been rough, with the result that my February, March and possibly April mortgage payments each arrived at the lender's office one day late.

Friends are telling me that the two (possibly three) consecutive late payments have effectively ruined my good credit standing. Can a 40-year record of meeting financial obligations be wiped out by three late mortgage payments?

Not quite - but that's no reason to get sloppy.

The good news: It's quite possible your lender hasn't reported your late payments to the credit bureaus - the companies that compile your credit history. Many mortgage lenders don't report late payments until they're 30 days or more past due.

The bad news: If your lender did report your late payments, your tardiness could indeed put a significant ding in your credit history. Lenders get nervous when people start making late payments, and that's reflected in the way credit scores are computed. Your payment history makes up about 35 percent of that score.

Your previous history of on-time payments would ameliorate the damage, but only somewhat. What would help even more is getting your act together: The importance of any late payments will fade over time if you return to your previous prompt habits.

This is one more reason it's important to have cash equal to several months' worth of expenses set aside in an emergency fund. Such a cushion can save you from having a scarlet "L" (for "late payments") sewn to your reputation.

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