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  • How to improve your payment history to get a better credit score

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    When bills start to pile up, it can become challenging to pay them all on time. Getting bombarded by multiple payments due at the same time can hurt financially. However, neglecting to make timely payments will negatively affect your credit score, fast.

    One is all it takes
    Your credit score is made up of five different factors, all weighted differently. Payment history takes the biggest piece of the pie; 35 percent of your score is based on your past payments. Experian explained even one late payment can begin to affect your credit score, and even more so if you have a high one [1].

    For instance, someone with a great credit score and only one payment that is 30 days late could see a drop of up to 110 points. On the other hand, someone with average credit with prior missed payments might see a slide of between 60 and 80 points if a payment comes in more than a month late again.

    Having a good credit score is important when applying for jobs, finding an apartment to rent and receiving loans with a good interest rate. Once your credit begins to go down, your chances at all of these things follow suit. However, if you have missed a few late payments, hope is not lost. There are ways to improve your score.

    Create a plan
    The first thing you should do is focus on upcoming bills. Find a strategy to help you start making your payments on time. One way to do this is to use a calendar. Determine when each one is due each month and mark it on the calendar, or even a day or two ahead of time. If you're using a calendar on your smartphone, try creating alerts for those days.

    If you discover that many of your bills are being crowded into one week or one day and it is putting a strain on your paycheck, call your creditors and ask if you can move your bill due date. Many will accommodate, as long as you don't choose a date that doesn't come around every month, like the 31st.

    Some of your bills may be able to be set up for automatic payments. When you set up automatic payments, the company will withdraw the amount due from the account you specify at the right time. The only thing you need to be careful of is having enough funds in the specified checking account for the bills assigned to it every month. To be sure of this, consider creating a budget. Calculate how much these bills will cost you at every payment day. Then make sure that the appropriate amount from each paycheck goes to the account.

    For instance, according to the National Association of Home Builders, the average electricity bill in 2013 was about $110 [2]. If you can estimate that your bill will be about this amount, you will put $55 from a biweekly paycheck into your designated bill pay account. Talk to your employer about direct deposit, so you don't have to remember to move the funds yourself.

    Moving forward
    Track your progress by checking your credit report periodically. You are entitled to one free credit report annually from each of the three credit bureaus: Experian, TransUnion and Equifax. Theoretically, you could check your report once every four months, or get all three at once to compare. When you do receive them, make sure everything on the report is accurate. As you're recovering from a damaged credit score, you want to make sure there isn't any false information bringing it down further. If you find a mistake, report it right away to get it removed.

    Once you have devised a strategy that will work for you, you are well on your way to a higher credit score. Be patient, though. According to myFICO, late payments are generally taken into account for seven years. However, with each passing year, a late payment is worth less and less [3]. Your improved bill payment habits will start to improve your score, even before your delinquencies disappear from your report.

    If you find yourself having trouble making ends meet or continuing with your bill pay strategy, consider talking to a credit counselor for help. It won't affect your score, but you may find some good advice and techniques for managing your finances.

    A late payment might be a simple mistake, or a sign of a bigger problem. Regardless of the cause, delinquencies can have a negative effect on your credit score. By making some changes to the way you manage your finances, your score will start to improve. This will make getting low rates on loans that much easier.

    [1]. Can One Late Payment Affect My Credit Score?
    [2]. Average Monthly Electrical Bill by State - Updated Data
    [3]. How to repair my credit and improve my FICO Scores



  • The information provided in these articles is intended for informational purposes only. It is not to be construed as the opinion of Central Bancompany, Inc., and/or its affiliates and does not imply endorsement or support of any of the mentioned information, products, services, or providers. All information presented is without any representation, guaranty, or warranty regarding the accuracy, relevance, or completeness of the information.