Pay Your Bills On Time:
How Late Payments Affect Your Credit Score
by Lisa Phillips
March 2008
How Late Payments Affect Your Credit Score
by Lisa Phillips
March 2008
Most consumers intend to pay their bills on time. I don’t think anyone purposely decides
not to pay a bill. What most consumers don’t know is how making just one late
payment, out of many on time payments, can severely damage their credit scores.
What is worse, the higher your credit score, the more one late payment can damage
your credit score. If you already have late payments in your credit history then one
more is not going to make much difference. However, if you have a good record of on-
time payments, just one late payment can lower your score by as much as 80 points!
A Few Reasons to Pay On Time
Avoiding universal default
Banks and credit card issuers have discovered another way to justify hiking your
interest rates. Universal default is the practice of creditors raising your interest rates
based upon your payment history with other creditors. For example: You pay ABC
credit card company on time every month but you pay your utility bill or another credit
card late. ABC credit card company then hikes up your interest rate based upon your
bill payment history with your other creditors.
This is universal default. Banks and credit card companies are looking for any sign that
you might default, and a late payment is viewed as financial trouble. Creditors
periodically review their customers’ credit reports and adjust their rates based on how
customers are paying all of their obligations. Read more on Universal Default.
Payment due dates have now turned in due times
Credit card companies may tell you it is imperative to pay your bills on time. The truth is
that credit card companies profit from late payments in the form of fees and higher
interest rates. They are eager to have an excuse to charge their customers more
money.
The proof is in the pudding. Some creditors now have due times instead in addition to
due dates. Due times allow a creditor to set a time, for instance, 12 noon for a payment
to be in their hands before it is considered late, even though it may have arrived on the
due date. Read the fine print of your credit card applications, statements and any
disclosures sent to you.
No excuses not to pay a bill
Didn't receive your statement this month?….too bad (says the credit grantor), you are
responsible for paying your bills whether or not you receive a statement. Always know
your due date and time and keep a record of what you owe. The U.S. Post Office is not
always reliable. Sometimes things do get lost in the mail, but this is no excuse not to
pay your bill on time. Credit card due dates may vary a little, but for the most part, they
are usually due around the same day each month.
A good way to keep up with you statement is online. Most credit card companies allow
you to view your account, 24 hours a day, free of charge. Many credit card companies,
banks and online bill pay systems offer free email reminder services. Banks and credit
card companies feel a misplaced, omitted or lost statement should not impede you from
paying your monthly obligations.
A Few Ways to Ensure Timely Payments
Automatic Payments
You can ensure timely payments with automatic bill payments. This service allows
companies that you owe to take their payments directly from your checking account
each month. Some of you may be concerned about checking account abuse. This is
understandable; however, keep in mind federal laws prohibit vendors from taking out
more than you authorize.
Any mistake made regarding over payment, extra payments or errors the company
must replace the money. Most banks and credit card companies allow you to set up
making just the minimum payment or a set dollar amount each month. The times when
you want to pay more, you can always pay via check or online. It will not interrupt your
automatic payment schedule.
Proceed with caution when it comes to some companies
Some companies have been known to abuse automatic bill payment. Proceed with
caution as automatic payment may not be appropriate for all bills. Health clubs, phone
companies and even Internet service providers do not always play by the rules.
Customers of these companies have complained about these types of companies
continuing an automatic payment even after services have been discontinued.
Pay with recurring credit card
If you are uncomfortable allowing banks and credit card companies access to your
checking account, many companies can set up recurring credit card charges and when
the bills are due, your credit card will be charged. The problem with this method is that
you will increase your balance on a particular card each month and if you do not pay
that credit card in full each month, your credit score will suffer.
Remember that what you owe makes up 30% of a credit score. So loading up one credit
card to pay your bills can lower your scores. Even if you pay that credit card in full in
each month you still need to be concerned about how much of your available credit you
use. If using one credit card to pay other bills brings you within 30% of your credit limit,
be careful, your credit score will suffer. Keep your balances low, at least 30% of your
available credit limit.
Online bill payment
Make use of your banks online bill payment system. You can set up the online bill
payment to either make recurring payments or decide when each bill gets paid. You are
in control. Unlike other methods, only you have access to your billing and account
information. You choose whom, when, and how much to pay. The benefits of online bill
payment outweigh detriments: With online bill payment you can:
Because payment history is 30% of your credit score, it is essential to pay your bills on
time. Paying your bills on time also avoids the practice of universal default. Do not pay
the banks and credit card companies any more than you have too.
not to pay a bill. What most consumers don’t know is how making just one late
payment, out of many on time payments, can severely damage their credit scores.
What is worse, the higher your credit score, the more one late payment can damage
your credit score. If you already have late payments in your credit history then one
more is not going to make much difference. However, if you have a good record of on-
time payments, just one late payment can lower your score by as much as 80 points!
A Few Reasons to Pay On Time
Avoiding universal default
Banks and credit card issuers have discovered another way to justify hiking your
interest rates. Universal default is the practice of creditors raising your interest rates
based upon your payment history with other creditors. For example: You pay ABC
credit card company on time every month but you pay your utility bill or another credit
card late. ABC credit card company then hikes up your interest rate based upon your
bill payment history with your other creditors.
This is universal default. Banks and credit card companies are looking for any sign that
you might default, and a late payment is viewed as financial trouble. Creditors
periodically review their customers’ credit reports and adjust their rates based on how
customers are paying all of their obligations. Read more on Universal Default.
Payment due dates have now turned in due times
Credit card companies may tell you it is imperative to pay your bills on time. The truth is
that credit card companies profit from late payments in the form of fees and higher
interest rates. They are eager to have an excuse to charge their customers more
money.
The proof is in the pudding. Some creditors now have due times instead in addition to
due dates. Due times allow a creditor to set a time, for instance, 12 noon for a payment
to be in their hands before it is considered late, even though it may have arrived on the
due date. Read the fine print of your credit card applications, statements and any
disclosures sent to you.
No excuses not to pay a bill
Didn't receive your statement this month?….too bad (says the credit grantor), you are
responsible for paying your bills whether or not you receive a statement. Always know
your due date and time and keep a record of what you owe. The U.S. Post Office is not
always reliable. Sometimes things do get lost in the mail, but this is no excuse not to
pay your bill on time. Credit card due dates may vary a little, but for the most part, they
are usually due around the same day each month.
A good way to keep up with you statement is online. Most credit card companies allow
you to view your account, 24 hours a day, free of charge. Many credit card companies,
banks and online bill pay systems offer free email reminder services. Banks and credit
card companies feel a misplaced, omitted or lost statement should not impede you from
paying your monthly obligations.
A Few Ways to Ensure Timely Payments
Automatic Payments
You can ensure timely payments with automatic bill payments. This service allows
companies that you owe to take their payments directly from your checking account
each month. Some of you may be concerned about checking account abuse. This is
understandable; however, keep in mind federal laws prohibit vendors from taking out
more than you authorize.
Any mistake made regarding over payment, extra payments or errors the company
must replace the money. Most banks and credit card companies allow you to set up
making just the minimum payment or a set dollar amount each month. The times when
you want to pay more, you can always pay via check or online. It will not interrupt your
automatic payment schedule.
Proceed with caution when it comes to some companies
Some companies have been known to abuse automatic bill payment. Proceed with
caution as automatic payment may not be appropriate for all bills. Health clubs, phone
companies and even Internet service providers do not always play by the rules.
Customers of these companies have complained about these types of companies
continuing an automatic payment even after services have been discontinued.
Pay with recurring credit card
If you are uncomfortable allowing banks and credit card companies access to your
checking account, many companies can set up recurring credit card charges and when
the bills are due, your credit card will be charged. The problem with this method is that
you will increase your balance on a particular card each month and if you do not pay
that credit card in full each month, your credit score will suffer.
Remember that what you owe makes up 30% of a credit score. So loading up one credit
card to pay your bills can lower your scores. Even if you pay that credit card in full in
each month you still need to be concerned about how much of your available credit you
use. If using one credit card to pay other bills brings you within 30% of your credit limit,
be careful, your credit score will suffer. Keep your balances low, at least 30% of your
available credit limit.
Online bill payment
Make use of your banks online bill payment system. You can set up the online bill
payment to either make recurring payments or decide when each bill gets paid. You are
in control. Unlike other methods, only you have access to your billing and account
information. You choose whom, when, and how much to pay. The benefits of online bill
payment outweigh detriments: With online bill payment you can:
- Set-up recurring payments of the same amount to be automatically paid.
- Choose the payment frequency: weekly, bi-weekly, monthly, quarterly, semi-
annually or annually.
- Make one-time payments to a company, business or person for different amounts
at different times.
- Review upcoming scheduled payments, make changes or even cancel the
scheduled payment.
- Easily keep track of the due date and due time you paid a bill.
Because payment history is 30% of your credit score, it is essential to pay your bills on
time. Paying your bills on time also avoids the practice of universal default. Do not pay
the banks and credit card companies any more than you have too.
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