December 30, 2008
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News: Cost of Being Late on Card Payments.
Now, more than ever, it's important for the American public to become appraised of the consequences of making late payments on credit cards. We're now forced to make some very difficult decisions between credit card payments and other important responsibilities. Because FICO credit card scores don't have immediate consequences, people tend to disregard Steven Covey's Quadrant II activities – those which are "Important, but not immediate".
How much will this hurt us? Like Mr. Coven explains in "The 7 Habits of Highly Effective People", poor people have poor ways – meaning, "we keep ourselves poor by the way we live". How many of us understand the difference between a FICO credit card score of 720 vs. a FICO score of 620? Probably very few. Especially since the rules have changed so very recently concerning severe credit card problems.
So how much will these new rules effect our lives? Just a few years ago, a FICO Score of 620 would get us very favorable finance rates. Today, that figure has moved up into the mid-700s. Again, most people know little about how this works and so they take lightly, making late payments on their credit cards. If they only knew that it could cost them 100 points off their score, most would hold serious reservations before making late payments on their cards.
To illustrate how much difference it can make in a routine situation, consider an individual (or family) that purchases a new car for $25,000 ($12,500 for the car and $12,500 more for tire insurance. Only kidding but watch out for the hidden frills.) Realistically though, a person with a 720 FICO Score could expect to pay about $772 per month on that auto loan. Now let's consider that consumer defaulting on a credit card payment just before buying the car. If their FICO drops 101 points, down to FICO 619, that same car could cost that consumer $877 a month. That's over $100 per month difference and, on a five-year payment plan, that could equate to an additional $6,000 cost on that car purchase.
This is Covey's Quadrant II stuff and it's true that many American's really do keep themselves poor. Read Covey's book, it's truly life-changing. Give serious thought before being late on a credit card payment.