By: Joanne Cavis, UGA Cooperative Extension
The single most important thing that you can do to protect your credit score is to pay your bills on time. Pay bills on time and you avoid late fees, service interruptions, and additional finance charges. A consistent record of timely payments can also dramatically reduce the cost of any loans you take out in the future.
Your payment history is an important part of your credit report. Late payments lower your credit score and remain on your credit report for seven years. Each month without additional late payments raises your credit score. Borrowers with higher credit scores have an easier time finding a lender and will pay less in finance charges.
Getting organized and setting up a system for keeping up with due dates helps. You can use a legal pad, loose leaf notebook, a large calendar or whatever will work for you. The system is not as important as making sure it works for you. Any system begins with a list of all your regular financial obligations, the amount you pay each month, and the due date.
If misplacing bills causes you to miss the due dates or payments, designate one place in your home just for bills. When the mail arrives, place any bills in the designated area right away. Add a calculator, stamps, pen and your checkbook, and you have the beginning of a home financial center.
If you do not have the money to pay your bills on time, assess your situation. Determine how much you can afford to pay and when you can pay it. List your bills in priority order, most to least important. What are the consequences if you miss the due date? Pay accounts with the greatest penalties first.
In general, secured loans are priority number one. These are loans where missing payments leads to repossession or foreclosure of the financed item, such as a home, car or furniture. Your second priority is service credit which includes things like electric, natural gas, water and telephone bills. Paying these bills late often results in disconnection, hefty reconnection fees, late fees and other costs.
Unsecured loans include credit card debt, medical bills and signature loans. Paying these obligations late may result in late fees and additional finance charges, but is unlikely to result in disconnection, repossession, or termination of services.
Once you decide which bill(s) you cannot pay on time, contact the creditor before the due date, tell them the problem and what you are able to do, the amount you can send and when you can send it. Most of the time they will work with you. Follow through on your promises. If circumstance change again, contact your creditor immediately. Failure to keep your word could hamper your ability to negotiate terms in the future.
Paying bills on time may seem like an ordeal. A good system of keeping track of due dates helps to simplify the task. The payoff is worth the time and trouble.