What is possibly the most important tip for keeping a lock on your credit score and credit health?
It's no big secret--in fact, you won't be very surprised at all by how simple this one credit tip really is:
If you have bills, pay them in full, on time every month, until that bill or loan is completely paid off or you close your account.
It really is that simple, but this one simple thing is going to be the absolute most important thing for fixing bad credit or establishing a strong history if you have no credit at all. It's especially important if you have no credit, because--since things are averaged--if 4 of your 8 total payments are late, a lender will see that you're only making 50% of payments on time.
Pay smarter!
What Are the Best Ways to Make Sure I'm Paying on Time?
Let's dive right into the nuts and bolts of it all: how to stay on top of payments.
Fortunately, there are a ton of easy strategies for remembering to pay all of your bills on time--ranging from low-tech solutions to just making a monthly bill-pay calendar so you can visualize when things are due, up to higher-tech solutions like setting payment reminders on your smart phone, or signing up for auto-pay options if possible.
Just remember: don't sign up for auto-payment if you're not sure if there will be money in the bank on the day that payment is due. If you can't consider auto-pay, you'll need to get crafty with calendar reminders and checklists.
Why Are Late Payments So Bad for Your Credit Score?
There are certain pieces of the credit-score-weighting process that can seem like a mystery; this is not one of them. The simple truth is that late payments have such a strong influence (the average weight that payment performance carries is about 35%) on your credit score because it shows whether or not a lender should trust you with a loan.
It may not seem fair to be judged so harshly for one or two missed payments--after all, accidents happen--but if you're asking to borrow a few thousand dollars, you can't fault a lender for wondering whether you're going to be able to pay them back.
Credit.com estimates that one 30-day late payment (or longer) could drop a really good score by about 100 points, because you've now got a blemish on your perfect record. And, it takes longer than you might think for that blemish to fade away.
How Long Do Late Payments Stay on My Credit Report?
The good news is that nothing lasts forever--even bad marks on your credit report that don't look great to potential lenders when you're applying for a loan.
The bad news, though, is that bad news sticks around for up to seven years. Exactly when those late payments are reported to the credit bureaus, and how long they actually stay on your report, depends on a few different factors, even including the professional policy of the creditor holding your account. Some are willing to wait until payments have been missed for a few months before labeling them as late to the bureaus--others are a little less patient.
Other bad news is that it's not impossible for a mistake to show up on your report, as a result of misfiled paperwork or a switched account number. That's why it's important to be able to request your free credit report at least once a year, and make sure that you don't have any errors hurting your credit.
If you have some late payments dragging on your score, though, it's never too late--or too soon--to commit to 100% consistent, timely payments.
What Happens If My Monthly Bills are More Than I Can Pay?
Credit cards allow for a "minimum payment" per month that allows you to pay a small portion of your total balance and avoid a late-payment blemish on your credit report. However, all of the money that rolls over to the next month will be accruing interest and raising your total debt--so counting on the minimum payment is only a very short-term solution.
Talking with a credit or debt counselor could help you create some strategies to get back on top of your monthly payments. If your biggest monthly struggle is an expensive car payment, though, it might be time to ditch those wheels.
Our guaranteed no-credit/bad-credit financing program could help you make the switch to smarter bill pay. Trade in your current, pricey vehicle for something a lot more affordable. With a huge inventory of low-priced cars, trucks, and SUVs, you'll be able to find something you'll love driving that fits your budget a lot better.
Because it's worth repeating: it's never too late to start building better habits--and building a better credit history.
