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Credit Crunch: Why On-Time Payments are so Important

How to make on-time payments a habit

Americans continue to pull out their plastic at record rates to pay for everything from gasoline to groceries. At the same time, more U.S. residents are falling behind on making payments on those revolving accounts and others, according to a new report out from The Federal Reserve Bank of New York.

The Vicious Cycle 

You pay a credit card bill late – even by just a few days – and your card issuer socks you with a late payment, adding even more money to what you already owe. On top of that, your credit score also takes a hit. And if you are more than 30 days late with a payment, your score could drop by 100 points — or more. It gets worse. That same late payment of 30 days or more can stay on your credit report for up to seven years, according to the Consumer Financial Protection Bureau (CFPB). The bottom line?

Not Making On-Time Payments Can Wreak Havoc on Your Score.

And when it comes time to borrow money for a home improvement project or a new car, having a less-than-stellar credit score because of making late payments will make lenders think twice about your creditworthiness. In other words, they will see you as a risk and may not approve your loan request. Remember, the lower your score on a scale of 300 to 850, the harder and more expensive it is to get approved for a loan.

If you have been late making payments in the past, take heart. There are steps you can take to start building up your credit score again. Here are some strategies to make on-time payments a habit.

Know the Rules

In order to make sure you are paying your bills on time every single time, you need to be aware of when your accounts are due and the fastest way to make a payment and get credit for it. This may mean breaking out your readers or a magnifying glass and inspecting the fine print on your credit card statements. For payments to be considered on time, notes the CFPB, they need to be received by the due date. That means they can’t be mailed or postmarked by the due date and be counted as on time. “Keep in mind that payments may get delayed in the mail,” according to the CFPB, “and even online bill pay services can take time to process.”

Create Visual Cues

To keep track of when bills are due, you can set up multiple reminders on your calendar, either the one on your wall or the one on your favorite device, to remind yourself a few days before the grace period ends. It’s a good idea to pay a few days early if at all possible to ensure your money makes it to the lender in plenty of time. Typically, credit card companies can’t treat a payment as late, notes the CFPB, “if it’s received by 5 p.m. on the day it’s due (in the time zone stated on the billing statement), or the next business day if the due date is a Sunday or holiday.”

Set it (and mostly) Forget it

One of the easiest ways to get your act together when it comes to making prompt payments is by automating the process. If that sounds familiar it’s because I’ve been beating the automatic payment drum for years. Why? It absolutely works. If you need help with this, you can check in with your local credit union or other financial institution for help getting automatic payments set up. If that means you also need to sign up for online services, go ahead and do that, too. You won’t regret it. Having the ability to check your balance from your smartphone or other device can be life-changing.


With reporting by Casandra Andrews and written by Jean Chatzky,