How Paying Bills Late Today Hurts Your Tomorrow
Even if all of those bills piling up on the counter get paid eventually, putting them off can hurt your financial future. Late bill payments are one of the main reasons for low credit scores. Creditors report bill payment activity to consumer credit bureaus every month, and each late payment dings an individual’s credit score.
A history of late payments can indicate to a lender that there is risk involved in lending to you. Basically, your late payment history warns potential new creditors that you may be irresponsible with money.
Why Good Credit Matters
Credit scores are used for many reasons. Employers may reference them as part of their pre-employment screening process. Banks may request your credit score before they open an account or approve a loan. If you want to buy a house or a car, you’ll need good credit to secure financing and low interest rates. Bad credit can prevent you from:
- Renting an apartment
- Securing a job in finance or banking
- Being approved for a credit card
- Setting up utility accounts
- Getting a cell phone account
Tips for Maintaining Good Credit
The good news is rebuilding your credit is possible. To ensure that you achieve the best credit score possible, you should:
- Request your annual credit report. Consumers are entitled to a free credit report once a year or after they have been denied credit. Ordering this report regularly is key to maintaining good credit because it allows you to monitor your credit and gives you the opportunity to check the report for accuracy. Mistakes are common, and these errors can make your score lower than it should be. In fact, the Federal Trade Commission has estimated that 1 in 5 consumer credit reports contains erroneous information.
- Spend responsibly. A good credit score requires a balance between credit limits and spending. Score algorithms compare how much credit is available to how much of that credit has been used. Financial experts recommend maintaining a debt-to-income ratio of 36 percent or less. Keep track of monthly spending and never spend more on credit than you have in cash.
- Automate bill payments. To ensure that you never pay bills late again, set up automatic payments through your bank for all of your regular creditors. Each month, bills should be paid on time, preferably before the due date, and in full. As consistent payment activity is reported back to the credit bureau, your credit score will begin to improve.
- Maintain a good mix of credit. For a well-balanced credit history, consumers need to maintain good standing on several financial fronts. A mix of credit cards, loan notes, and mortgage payments paid consistently on time will generate a solid credit score. Those who lack different types of credit may need to open additional accounts and use them wisely to improve their credit score. Consumers who have no credit history may want to consider applying for a small personal loan and opening a credit card to build their credit history.
Fix Credit Today for a Better Tomorrow
Maintaining a good credit score takes consistent work and responsible financial habits. A good start to improving your credit score is getting a handle on your financial responsibilities and ensuring they are met every month. Paying bills on time can go a long way toward rebuilding a poor credit history and increasing a credit score. Neglecting bills can cause a downward spiral of debt and financial problems that become harder to get out of as time goes on. There is never a bad time to start improving your credit.