35% of your credit score is made up of your payment history! Lenders want to know how often you paid your credit account on time. This is the most important factor of your score and is designated with a heavier percentage to reflect that.
If you have very few accounts reporting monthly payments, 1 late payment will devastate your score. It could take months to years to recover from that. Why? Lets take a look at this example..
New Credit Borrower: Only 1 credit card, and 1 auto loan. Each account has been open for 12 months. This means 2 accounts x 12 months payment history = 24 total payments reported. If you missed payment on both accounts in a month, here’s what it translates to. 2 late payment = 92% percent on time payment history.
Old Credit Borrower: 10 credit cards, 1 student loan, 1 mortgage. Each account has been open for 8 years. This means 12 accounts X 96 months payment history = 1152 payments reported. That’s about 0.17%, a number that will not even phase your an older borrower.
Take look at this chart from credit karma to see how on time payment percentages are viewed by the scoring models:
Choosing not to deal with a late payment also means choosing to live with it for 7 years until it drops off your report. For many this simply is not an option. Especially if you are applying for a home mortgage, apartment, personal loan, auto loan etc,. you can’t wait 7 years. That’s where a goodwill letter will come in handy.
First of all, you need to phrase your letter properly. You can’t just ask them to remove a late payment from your report. That’s too easy. Lenders and banks have agreements with credit reporting agencies that forbids them from removing items from your credit report.
If you ask them the wrong way they’re going to send you a reponse the says somthing like;
“In order to preserve the accuracy of the credit reporting system were unable to remove any items from your credit report.”
“In order to be fair to our other card holders we cannot remove any items on your credit report.”
Constructing Your Letter
So now lets discuss how we will approach the creditors. Here are the key ingredients to writing your Goodwill Letter.
- Be friendly and Cordial
- Prove your value
- Explain your mistake
- Be specific
- Use a template
Note: that these letter typical work best for those who have 30 day late payments. These people typically have very few late payments in the last few years. For those with 60-90 day late payments, will not fair as well. After 90 days the law allows creditors to send your account into charge offs or collections.
One Last Thing..
Probably the most important thing … bring your accounts back to current status. Then allow about 3 months of on time payments before contacting the creditors. Why? You want to the on time payments and current status to reflect on your credit report first. sometimes creditors report every 90 days. The key is to contact them after they have seen that you are now making on time payments. This goes for all accounts you are behind on. You increase you odds greatly if all accounts on your report are now showing current.