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.
1) Check Your Credit Report – Improving or repair your credit score starts with getting a free copy of your credit report and checking for errors. Since your credit score is based on information on your credit report, it is crucial that this information is accurate. For example, check to see if there are:
Accounts listed that aren’t yours
Delinquencies, including late payments and charge-offs, that aren’t yours
Negative entries that are more than seven years old (bankruptcies can take 10 years to fall off your credit report)
Incorrect amounts owed
Read more on how to carefully review your credit report!
2) Pay Your Bills on Time – As discussed in the factors impact your credit score, payment history makes up about 35% of a typical credit score. One late payment can have a major impact on your credit score. The higher your credit score is, the more a late payment can hurt it. Of the factors that affect a credit score, payment history makes up 35% of the typical credit score. Ensuring that all your bills get paid on time is essential.
To help you pay your bills on time, set up payment reminders or automatic payments. It also helps to keep track of what you owe and to whom you owe.
3) Pay Down Your Debt – How much of your available credit you’re using makes up 30% of a typical credit score. The score looks at how much of your credit limit you’re using on each card, as well as how much of your combined credit limits you’re using on all your cards. The lower your balances are in relation to your credit limits, the better it is for your credit score.
The score also looks at the progress you’re making on paying down installment accounts, such as auto loans and mortgages. It compares how much you owe to what you originally borrowed. Paying down the balances over time shows consistent and responsible credit-handling behavior and this will help boost your score.
Here are tips on how to pay down your debt.
4) Don’t Close Credit Cards or Other Revolving Accounts – If you want to increase your credit score, don’t close any of current accounts. Ending your accounts can never help your score, and it may actually hurt it. This is because closing your accounts reduces your total available credit, and that makes the gap between your credit limit and the balances you carry smaller. The smaller the gap is, the more it hurts your credit score.
It’s especially important to keep your oldest account active. Closing older accounts can hurt you because the FICO credit score formula takes account the age of your oldest account and the average of all your accounts. Shutting them down can make your credit history look younger than it actually is, and your score can drop as a result. Even if you don’t use those accounts anymore, you should still charge something occasionally because the lenders may decide to close them for you if they see them as inactive.
5) Apply for Credit Sparingly –Responsible credit users don’t just apply to credit cards from multiple department stores just to get a 10% discount. Although you might save 10% on your current purchase, you can wind up paying more in overall interest, as too many credit applications can lower your score. Responsible credit users don’t apply for credit they don’t need. They try to spread out new credit requests, so that they’re not opening multiple accounts in a short period of time.
How much of your available credit you’re using makes up 30% of a typical credit score. Thus, to improve your credit score, you should keep track of much you charge on each card and always pay down your debt. The less balances you carry, the better it is for your score.
Tip 1: If you have a large balance on one card and the other accounts carry zero balances, transfer some of your debt from that card to the unused cards to improve your credit score.
Doing this can help your score because it is better to have small balances on a few cards than one big balance on a single card. To have a good credit score, you should only use a portion of the available credit limit on each credit card account. However, this will only work in the short run. In order to improve your score in the long term, you actually have to pay down your debt, not just move it from one card to another.
Tip 2: If your goal is to improve your credit score, prioritize and pay down the debts that are closest to the accounts’ credit limits first.
Once the closest has been paid down to below 50% of its limit, you can start paying down the second closest. Although many people argue against this approach and will advise you to pay off your highest-rate debt first because it makes a lot of financial sense, it isn’t the fastest way to improve your credit score.
Tip 3: Avoid consolidating your debts. Although many people want to transfer their balances to a single card to take advantage of a low rate, it is typically better to have small balances spread across all your accounts rather than having a large balance sitting on only one account.
Finding Money to Pay Down Your Debt
Here are a few tips on how to pay off your debt:
1) Sell your stuff –Sell items you don’t need by organizing your own garage sale, taking them to consignment shops, or auctioning them on eBay.
2) Trim your expenses – Eat out less often, shop using a grocery list, and find free entertaining things to do instead of going out and spending money. Tracking your spending can also give you ideas on how you can save.
3) Boost your income – Pick up a part-time job. See if you can find extra work that will boost your income to help you pay down your debt.