We all know it’s important to pay our bills on time, but we may not fully appreciate why it’s so important. Of course, there’s the worry of getting evicted, a car being repossessed, the lights getting turned off or losing cell phone service. These are all serious concerns to be sure, but there’s another dimension to late bill payments that is a lot more subtle and can have just as serious an affect on your future and your financial health – damaging your credit payment history.
It may be easier not to stress about being late on a payment because there is no fear of any of the consequences mentioned above. But being late on a bill payment gets recorded in your credit report and your payment history is the biggest single factor affecting your credit score, accounting for 35% of it. While you might not feel the effects right away, damaging your credit score could mean paying higher interest when your mortgage renews or not getting approved for a mortgage in the first place, having to take out a high-interest car loan or, again, not finding anyone to approve your loan application and/or in some cases not getting hired for the job you want because of your credit.
The Immediate Effects of Late Payments
There are also immediate effects of late payments. According to Borrowell:
“The typical timeline goes as follows: 30 days, 60 days, 90 days, 120 days, 150 days, and then it will be written off as a loss and categorized as ‘uncollectible.’ It’s extremely important to keep up with payments or be aware that you’re late. In addition to negatively impacting your score, chronically missed payments may lead to higher interest rates, late fees and penalties, reduced credit limits, and even court judgments.”
And according to Equifax (one of the three credit bureaus in America that maintain our credit reports):
“Late payments can remain on your Equifax credit report for up to seven years from the date of the missed payment. The late payment remains even if you pay the past-due balance. Your payment history may be a primary factor in determining your credit scores, depending on the credit scoring model (the way scores are calculated) used. Late payments can negatively impact credit scores.”
Improving Your Payment History
So now that we’ve covered the reasons why it’s so important to make sure you’re paying your bills on time, let’s cover some strategies to do so. A good place to start is with your current payments. Here are some tips to do so:
always make your payments on time
make at least the minimum payment if you can’t pay the full amount that you owe
contact the lender right away if you think you’ll have trouble paying a bill
don’t skip a payment even if a bill is in dispute
Contacting the company for a bill you won’t be able to pay on time is important. You might feel intimidated to do so, but lenders are usually willing to work with borrowers because they understand that life happens and because they want to get paid. They may put a note on your file that stops your late payment from being recorded with the credit bureaus, they may also work out a repayment plan that’s easier for you or they may offer other services like payment deferrals. Just be sure to ask about all the terms and conditions of any services or programs a lender offers you as you may end up paying more money in interest to use them.
Practical Tips for Paying Your Bills on Time
The last thing you want is to miss a bill because of forgetfulness so setting up automatic payments on all your bills would be ideal. Just be sure to set a reminder for yourself on your phone and with a post-it attached to a physical calendar every month (or every couple of weeks as the case may be) to double-check your account and confirm that there’s enough money in it to cover all of the money coming out. You’ll also want to review your bills in detail to make sure there aren’t any issues and that you’re not being overcharged.
If you have any bills that you’re not able to pay from your bank account, again, setting up a repeating calendar event on your phone and writing a note to yourself on a bulletin board, calendar or anywhere else you look at on a daily basis, can help you stay on top of your bills, build up good payment history and maintain healthy financial wellness.