What is the Number One Rule of Credit? Pay Your Bills On Time!

When it comes to building and maintaining good credit, there is one golden rule that rises above all others: pay your bills on time. Consistently making on-time payments is the most important thing you can do to keep your credit score high and avoid any negative marks on your credit report. Let’s explore why on-time payment is so critical and how you can make it a habit.

Why is Paying On Time So Important?

Payment history has the biggest impact on your credit score, accounting for 35% of your FICO score. Every time you make an on-time payment, it is reported to the credit bureaus and helps demonstrate that you are a reliable borrower. Conversely, any late payments will lower your score.

Even just one 30-day late payment can drop your credit score by as much as 110 points! Missing payments also leads to additional fees and penalties from creditors. Clearly, those missed payments can end up costing you a lot more than just the original bill amount.

Late payments negatively impact your credit in a few key ways:

• Your payment history has a major effect on your credit scores A good track record of on-time payments helps your scores; missed payments lower them

• Creditors may report your late payments to the credit bureaus. If you’re late for 30 days, it will show up on your credit report and hurt your scores.

• You may have to pay late fees and additional interest charges This increases the amount you end up paying

• You may find it difficult to obtain credit in the future if you don’t have a solid history of making payments on time.

As you can see, the risks significantly outweigh any perceived benefits of paying late. Having good credit saves you money in the long run through lower interest rates and improved financial opportunities. Guard your scores carefully by always paying on time!

How Can You Make On-Time Payment a Habit?

We all lead busy lives, so how can you make sure those bill payments don’t slip through the cracks? Here are some proven strategies for paying bills on time, every time:

• Sign up for automatic payments. A lot of credit card companies and utility companies let you set up payments to be made automatically, so they are always made on time. This takes the effort out of remembering to pay.

• Use payment reminders. Credit card companies and banks will often let you choose to get email or text message reminders of your payments. Your phone’s calendar or budgeting apps can also help you remember things.

• Pay immediately: Instead of waiting until the due date, pay bills as soon as they arrive to avoid forgetting. Many companies even offer incentives for paying early.

• Review payment dates: Keep a list of all your regular payment due dates so you know exactly what needs to be paid when. Mark them on your calendar too.

• Set up account alerts: A lot of service providers let you make your own alerts that will let you know when your balance reaches a certain amount. This helps you budget for upcoming payments.

• Pay extra when possible: Getting ahead on payments gives you more wiggle room if you ever need to make a late payment. Even an extra $10 can make the difference.

• Keep careful records: Maintain receipts and confirmation numbers when you make payments so you can resolve any errors quickly.

The most important thing is finding a system that works for your unique situation. Consistency is key, so automating payments or integrating reminders into your routine makes it easier to pay on time, every time.

What If You Can’t Pay On Time?

Of course, financial hardship happens. If you find yourself unable to make a payment on time, take action quickly:

• Contact your creditor: Explain the situation and ask if they can waive late fees or report your account as current if you make the minimum payment.

• Review payment options: Ask about hardship programs or changing your due date to better align with your pay schedule.

• Prioritize payments: Pay high priority bills like rent and utilities first, then make minimum payments on others until you can catch up.

• Avoid new purchases: Cut unnecessary spending until you get back on track. Compound debt will only make the situation worse.

• Get help: Nonprofit credit counseling agencies can help you manage debt, create a budget, negotiate with creditors, and get recommendations for debt relief programs.

If an ongoing hardship makes it difficult to stay current on your accounts, you may need to consider debt management services or even bankruptcy as a last resort. Don’t wait to get help. Acting quickly can help limit the damage to your finances and credit.

Build Your Credit the Right Way

Establishing a strong payment history is a marathon, not a sprint. By making on-time payments each and every month, you prove yourself to be a reliable and trustworthy borrower. Creditors and lenders notice responsible behavior like this, and reward it in the form of better credit scores, lower interest rates, and improved approval odds.

So remember: the number one rule for building great credit while avoiding issues is to pay all your bills on time, every time. Automate payments, set reminders, and stay organized to turn this into a foolproof habit. Your credit scores will thank you!