Consistently paying your bills late will hurt your credit score. We’re not talking about bills that have been sent to collections, that is another matter.
If you have bad credit, you are probably already experiencing the consequences. Bad credit puts you at the back of the line, so to speak. You miss out on the most favorable interest rates and fees or even face outright rejection by financial companies. Your credit score impacts every facet of your financial life:
- Loans
- Credit cards
- Mortgage
- Insurance rates
- Employment
- Rental contracts
Procrastinators
Let’s face it, we are all procrastinators on some level. It is so much easier to push things off until the last minute. With our bills, this can sometimes be after the last minute—meaning the bill is overdue!
Avoidance
Maybe you are stressed out about your cash-flow, especially if you have student loan debt and credit card debt. If you have a lot of bills, the whole bill-paying experience can be overwhelming. Avoiding your bills by shoving them in the drawer and kind of hoping maybe they will go away, is only going to hurt your credit score. And, add to your stress. Who needs that?
Paying Your Recurring Bills Late Will Also Hurt Your Credit Score
Your monthly bills for services and subscriptions are equally as important as loans and credit card bills. Sometimes we think we can relegate those bills to the back burner, but that is a mistake.
Additionally, some lending platforms are developing alternative ways to assess your creditworthiness if you have no credit history. These alternative scores look at your bill-paying history. They look to see if you pay your rent, internet, cable, phone, electricity, etc. bills on time. If you have a record of late payments, you could find yourself frozen out even from these lenders.
Paying on Time Saves You Money
In addition to hurting your credit score, paying your bills on time saves you money. When you pay late, you get hit with late fees. Your interest rate can be increased. You may face other penalties, all of which combined could result in paying double the original bill.
So what can you do to make sure you pay your bills on time and not hurt your credit score?
Automate Your Bills
We’ve spoken a lot about the benefit of automation—everything from apps that automatically send money to your savings accounts to smart home apps that automate your utilities, saving you on monthly bills. Automating your bill payment is crucial, especially if you are not the most organized person in the world, or overwhelmed with work and other responsibilities.
Prism, for example, is a mobile app that thoroughly automates your bill paying process. It will track your bills, send you alerts and even pay the bills for you. Developers are working on new features due to be out this year, such as automating cash payments, P2P transfers to digital wallets and social money apps.
Set Up Auto Pay
Most of the bills you pay each month can be set up for automatic payment. This means that each month, the amount you owe is directly withdrawn from your checking account. This is an easy way to make sure you pay your bills on time. If you get a personal loan from a P2P lender, for instance, your payments are set up for automatic withdrawal. You are never late and your credit score improves.
One word of caution though: Auto-pay means that your bills are consistently paid on time, which is good for your credit score. BUT, you need to be vigilant that you actually have the funds in your account to cover the withdrawals.
Low-Tech Solutions
If you’re not so much into autopay or mobile apps, you still need a plan to help you pay your bills on time.
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Organize
If you are still getting paper bills, find a place to put them—a place you will remember! Check the due dates on all of your bills and mark this down on your calendar. Set aside a day every month for paying the bills and pay them all. And don’t forget, mail takes time to arrive. So, if you wait until a couple of days before the due date, you could still be late.
If you are receiving your bills electronically, then you don’t need files. But, this can also make it easier to forget. As soon as you receive the bill in your email, head straight to your online banking platform. Utilize your online banking’s capacity to directly transfer funds to the person or company you owe.
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Use Alerts
Financial software such as Quicken and Microsoft Money have features that will send you a reminder via an email or SMS before your bill is due.
