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
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!
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.
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.
| Copyright RebuildCreditScores 2008. All Rights Reserved |
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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.
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.
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