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Your credit report may be one of the most important documents that you will come across in your lifetime. In my opinion, it is more important than your marriage license, driver’s license, social security card, paycheck or bank statements. Why? Because your credit report determines how much you are going to pay in interest when you want to buy something.

If you have a low credit score, and you don’t care enough to do anything about it — no problem! You will just keep shelling out thousands of extra dollars to pay for high interest rates.

What is a “good” credit score?

There is a lot of talk out there about credit scores, but very few people understand what these magic numbers actually mean.

You probably had a credit score of around 450 when you were born, and in my years of experience, the highest scores I have seen are over just over 800. But these numbers are meaningless unless you understand how they affect your ability to get a new loan.

In general, a credit score of 660 or higher will get you approved for a government-guaranteed mortgage. What if your credit score is lower than that? Well, you can still get approved, but guess what — your mortgage will have a much higher interest rate.

Are you ready to do the work it takes to improve your score? You may be shocked to know that there is one item that will do more damage to your credit score than just about anything else.

Late Payments Kill Your Credit Score

Flickr image by wsssst

The single most important item that will lower your credit score is a recent late payment. I have seen credit scores sink a hundred points in one day (from 690 to 590) because payment on one account showed up as being 30 days late.

And size does not matter! Even if you miss one measly $50 payment, your credit score will drop drastically. Your credit scores will be affected not by the dollar amount of the entry, but by your track record of making payments on time.

Take a look at your credit report. Next to each account, the report shows how often you were 30, 60 or 90 days late in making your payment.

Look For Common Errors In 30, 60 and 90 Day Reporting

It is important to remember that the data in your credit report was entered by humans, and humans do make mistakes. Review your credit report carefully, and double check any instances of making a late payment to be sure they are correct.

What if you look at your report and it shows you as being 90 days late (4) times yet 60 days late (2) times? Now, let’s use some common sense. How can you be 90 days late before you are 60 days late? Not possible. Sorry, you cannot get to third base without passing second base.

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