One of the necessary parts of having healthy finances that can often be a little painful as well is making sure all bills are paid on time and in full every single month. Many consumers do so simply as a matter of necessity, but what you may not know is just how vital doing so can be to your overall credit health.
Believe it or not, a full 35 percent of your total credit score is made up simply of how often you can demonstrate your ability to pay your bills on time. That is, in fact, the single largest factor that goes into determining a rating. Luckily, the more responsible you are, the better your standing will be. But the flip side of that fact is that if you miss even one payment, in some cases by just a single day (depending upon your lender's individual repayment rules), your score can drop appreciably. Sometimes, this decline can come to 100 points or more, which obviously makes up a substantial portion of even the healthiest scores.
Therefore, the ability to avoid these issues is of the utmost importance, and creating some type of system to avoid the potential for any late payments — or at least, to decrease that chance as much as possible — will likely go a long way to helping you preserve that credit score you've worked so hard to build and maintain over the past few years.
Where to start, and what to do
The simple fact is that most people in this day and age have a large number of bills they have to worry about every month. This can include those for their monthly lending costs, including those for their mortgage, credit cards, auto loans, student loans, and the like, as well as for cable, water, electric, and gas service in their homes, as well as their cellphones, magazine subscriptions, and more. Of course, most of the latter types of bills won't impact your credit scores in nearly all cases under traditional credit scoring models, but if you've received financing of any kind, keeping up on payments is vital to maintaining a healthy rating.
For this reason, one of the things you might want to do first is determine whether you are able to set up online, automatic bill payments so that you don't have to worry about making sure to mail out as many as a dozen envelopes every month. Fortunately, almost all businesses in 2013 allow for this type of transaction, so all you might have to do to significantly improve your ability to never miss a deadline is take a few minutes per business to set up these safeguards. Once that's done, the only thing you will probably have to worry about is having the money in your checking account to cover all of these payments, which is another matter entirely.
Of course, if you have a bill that cannot be paid online, which is still possible, you might want to set up a reminder on your computer, or perhaps mobile device, that you'll need to write the check and mail it by a certain date.
This has other benefits
On-time bill payments are vital to maintaining good credit health in other ways as well. For instance, it will allow you to avoid penalty rates and fees that can make your debts grow more quickly than you'd like, and also, depending upon the size of your outstanding balances, perhaps allow you to cut your obligations more significantly as time goes on.
New federal laws require that any contributions made to credit card bills of more than the minimum amount listed on these documents must go toward paying down the balance principal, rather than the interest charges you have accrued from carrying your debts over from one month to the next. That, in turn, causes your balances to drop more appreciably, and every dollar you pay into those debts to have a more profound impact. Another 30 percent of your score is made up of what is known as "credit utilization ratio," and the less you owe, the better your score will be overall. In fact, keeping your debts to 30 percent of limits or less is the best way to maximize this portion of your score.
Finally, another important aspect of maintaining good credit health is taking advantage of the ability to order free copies of your credit reports periodically, and this should be done as a means of determining whether there are any unfair markings that may be having a negative impact on your credit score in general. If any such entries are discovered, it might be helpful to contact a credit repair law firm about the issues, as these may be able to help you to resolve the problematic markings as quickly as possible, and return your standing to where it deserves to be.