It's January and another holiday shopping season is over. Whether you were frugal or went all out, your credit score may be at risk for a reason that's probably not even on your radar. It has to do with retail credit cards you may have opened, or cards you pulled out of a drawer and used for holiday purchases.
I am not talking about how those balances affect your credit scores, though they certainly can. One maxed-out credit card — even if the dollar amount of the balance is relatively small — could cause your credit scores to drop by some 25 to 45 points if you have excellent credit. But that's something that can be fixed. Pay down your balance and when it's updated by the credit reporting agencies your scores can recover.
What I am talking about is something that can cause long-term damage to your credit reports: a late payment (or two or more) for a credit card balance you forget to pay.
How It Can Happen
If you have always paid your bills on time, it may be hard to imagine how you could forget to make a payment. But it happens, especially if you use a credit card you don't frequently use, so it's not on your list of bills you normally pay each month. If you've moved or gone paperless (receive your bills online) you may not even receive a statement.
That's what happened to one of our readers, Sally, who said she made a "rare purchase" on her credit card before moving to another state. She didn't receive a bill or statement and forgot about it. "Six months later, I received a letter from a collections agency," she wrote. "I paid them immediately." But the damage was done. Her credit report listed the collection account.
A single late payment or collection account can cause your credit score to drop by 60 to 100 points or more! Even worse, the higher your credit scores, the more likely you are to experience a large drop. And since late payments are reported for seven years, the damage can affect your credit scores for years to come. (Isolated late payments do carry less weight over time, however.)
Recently, I almost found myself in this situation. At the beginning of December, I made some holiday purchases on a retail card I don't use that often in order to get a discount. But I have yet to see a bill — and can't remember if I signed up for paperless billing. So when my daughter opened the gift I bought her using that card, I felt a moment of panic as I wondered if I had overlooked the bill. Later that day, I logged onto my online account and breathed a sigh of relief when I saw no statement was yet available yet.