Make Payments on Time to Protect Your Credit Score
Your credit report can be a great asset in life. However, if you don’t maintain a good credit history then your credit report has the potential to become a liability.
Making timely payments on loans, utilities, and credit cards etc. is something that you should always strive to do if you want good credit. You can learn about how late payments impact your credit and discover tips to help you stay on top of your bills.
How Payments Affect Your Credit Report
Payment history makes up more of your credit score than any other data. With a FICO Score, the system used by 90% of lenders, 35% of the score comes from payment history.
Paying regularly before the due date on loans and credit cards will reflect positively on your credit report. Lenders can see this information and it can increase your overall score and your likelihood of being able to borrow.
However, if you miss payments frequently, then this will be a red flag, and could prevent you from acquiring credit. Late payments may also lead to higher interest rates on new lines of credit.
Why Do People Make Late Payments?
According to a 2016 report by Experian, almost 1% of Americans were more than 60 days behind on car loan repayments. 2.57% of people were 30 days behind on repayments.
Late payments may represent only a small number of the total people who have loans, but the actual financial impact is huge.
Whether considering an auto loan, mortgage, or credit card, the reasons for late payment can vary. These can include:
- Loss of a job or change in financial situation.
- Poor discipline.
- Lack of budgeting and planning for payments in advance.
Best Strategies to Prevent Late Payments
Late payments don’t just damage your credit report, they can also incur interest and other fees. You can avoid late payments by:
- Only applying for loans and cards etc. that you can afford to pay for.
- Set a direct debit so that payments automatically go out of your bank account.
- Some lenders will allow you to move regular payment dates to align with your payday. Explore this option if you find that bills are hitting at a time of the month where you don’t have funds available.
Managing your payments carefully will make finances less stressful. Most importantly, you’ll maintain a good credit report which will ensure you have financial options in the future.