Of the 5 major factors that affect your credit score, payment history usually makes up about 35% of your score. Payment history shows how responsible you have been with handling credit, such as whether you pay on time. When you make one late payment, it can hurt your credit score more negatively than you might expect. This is especially true when you have a high credit score to begin with. In fact, the higher your credit score is, the more damage a late payment does.
However, you can easily avoid making late payments with these tips:
1) Keep track of what you owe and to whom you owe – Some people argue that they never received a bill for payment, thus causing them to not make a payment on time. Unfortunately, credit card companies aren’t required to give you a warning or notice before they report your late payment to the credit bureaus, even if you never received the bill. It is your responsibility to pay your bills whether you get a statement or not. Thus, you need to keep track of what you owe and to whom you owe. It is your job to make sure that all your creditors get paid, even if your statement gets lost in the mail.
Keeping track of these details can also help you detect identity theft, as some criminals may steal credit card statements out of your mailboxes.
Tip: Make a list of all the bills you pay, whether it’s monthly, quarterly, or annually, and the date it’s due. Mark these dates on a paper or electronic calendar in your phone or computer. Pick up the habit of checking your calendar weekly to see if there are upcoming bills that need to be paid. With electronic calendars, you can configure it so that it alerts and sends you a reminder prior to the bill due date. You can also sign up for free email or text reminders for many online credit card or other bill payment systems.
2) Automatic Debit – This allows companies that you owe to take the amount you owe directly from your checking account each month without any action from you. The money gets deducted the same way as if you paid by check or by an electronic transfer.
3) Set Up Automatic Payments –If you don’t want vendors to deduct from your checking account through automatic debit, you can enroll in automatic payments that will be charged to your credit card instead. Using a credit card can give you more protection, because if a mistake is made, you can dispute an erroneous change and not have to pay until the problem is resolved. However, make sure that when you are setting up to pay your bills on your credit card that it won’t bring your balance close to your credit limit. As discussed here, if you are carrying a high balance on your credit card relative to your limit, it can hurt your credit score, even if you play to pay in full.
Paying bills online can also leave excellent trails as it can show exactly when the bill was paid. Therefore, you never have to worry about your check getting lost in the mail and getting slapped with late payment fees.
4) Pay Bills as They Come – If you pay each bill immediately when it arrives, it decreases the chances that you will lose the notice and forget to pay.