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 .
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 and this can help adjust your payment schedule so that it better aligns with your paychecks.
For your payments that are recurring month-to-month, a bill pay service can help automate the process and ensure you don't miss a due date. You simply enter in the payee information, where to pull the money from, how much to send, and the frequency of the payments. Once the process is established, it's your role to ensure there are enough funds in the specified checking account for payments each month and that you update the payment amounts as needed. That being said, a budget can help you stay on track and ensure you're aware of the money coming in and out of your account.
If your payment amounts are consistent month-to-month, budgeting can come a little easier. As long as you have an estimate, you'll have an idea of what you need to include in your budget. Some companies, such as your electric company, may have budget billing where you'll get charged a fixed amount each month and reconcile at the end of the year.
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. If 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 . 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.
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