Paying your bills on time is an important habit that everyone should learn. Keeping up to date with regular payments shows you can manage your finances properly and will positively impact your credit score. This is particularly helpful if you are considering a small loan application in the future.
Not paying your bills on time, on the other hand, provides many negative consequences.
It can result in a poor credit score and possible defaults, making it difficult for you to obtain credit and build financial security.
Your Accounts Stay out of Collections
More credit card companies are turning to debt collection agencies when their customers don’t send credit card payments on time. Even the smallest credit card balance can get sent to a collection agency if it goes unpaid for several months.
Once an account is in collections, you no longer have the option of making minimum monthly payments. The collection agency will demand the full balance and sometimes even an additional fee, as allowed by law. Collection agencies contact you repeatedly until you pay up and can even place the delinquent account on your credit report. Pay on time and you can avoid dealing with debt collectors.
Enjoy a Lower Interest Rate
Late payments can cost your low interest rate. Credit card issuers are allowed to increase your interest rate if you’re more than 60 days late on your credit card payment. The penalty interest rate on many credit cards is a staggering 30%.
While the penalty rate will expire if you pay on time six months in a row, in some cases, the penalty rate will continue to be applied to new purchases as long as you have that credit card. Paying your credit card on time allows you to triggering a higher interest rate on your credit cards.
Credit card issuers are allowed to raise your interest rate on any other credit cards you have with them, even if you’ve always kept up with those payments.
Building a good credit score
Paying your bills on time will help build a good credit score.
Your credit score is a reflection of how you manage your finances. When applying for any type of credit, such as a credit card or mortgage, this one of the key areas that a lender will check.
Missed payments show up on a credit file and will drag down your credit score and even worse, defaulted payments stay on your file for six years.
Defaults typically arise after you have been sent a late payment letter but ignore it. Once the debt is passed to a debt collector, it shows as a default.
You will find it very hard to obtain credit with a default on your credit file.
Improve your chances of a mortgage and owning a home
Paying your bills on time is going to make it much easier to obtain a mortgage to by a home.
Lenders like to see that you can manage regular payments and won’t default on your mortgage, which is likely the largest amount of money that you will ever borrow.
Buying a home can be a stressful time and you want to obtain the best rates on a mortgage that you can – meaning that you pay back less interest.
One of the easiest ways to secure this is simply by paying your bills on time and keeping a close eye on your credit score.
Get Lower Insurance Rates
Insurance companies increasingly use your credit score to determine insurance rates. When late credit card payments lower your credit score, your insurance rates could increase when it’s time for your renewal. Sending your credit card payment on time helps you get the lowest insurance rate and therefore helps you save money.
Keep Your Monthly Payments Low
When your credit card payment is lade, your next minimum payment will be more than double what it would have been had you not missed a payment. That’s because your next credit card payment will include two minimum payments and a late fee. If you have trouble making your credit card payment, putting it off won’t make it easier to pay. Instead, the opposite happens and it gets increasingly difficult to get caught up.
Keep Your Credit Card in Good Standing
Missing a credit card payment puts you at risk of having your credit card close. This could hurt your credit score, especially if you have a credit card balance. Keep sending your credit card payment on time so your account remains open and in good standing.
Pay your bills on time for financial security
Keeping on top of your finances and paying your bills on time might not sound particularly glamorous or exciting but it will provide peace of mind and a good night’s sleep.
Worrying about money is a common problem but paying your bills on time will help alleviate much of this stress.
Imagine a life with no dreaded reminders coming through the door, calls from debt collectors, or the threat of your electricity being cut off.
It’s also extremely satisfying to watch your credit score grow.
With an improved credit score, you can relax safe in the knowledge that should you need to borrow money for home renovations or take out interest-free credit for a new sofa – then you will be likely to get it.
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