Phone number (800) 400-ZINU(9468)

Why Is It Important To Pay Your Bills On Time, Every Time?

A late payment is simply a payment that you have not made to the lender before the due date. This happens to the best of us as we can make mistakes due to oversight or shortage of cash. Unfortunately, these mistakes will negatively affect your credit score and cause it to drop dramatically as your payment history is the key component used to calculate your credit score.

In this article, we will discuss how late payments affect your credit score, the other potential penalties, and tips on how to keep your future credit in tip-top shape.

THE EFFECTS OF LATE PAYMENTS ON YOUR CREDIT SCORE

You know that late payments can negatively affect your credit scores. However, you may not be aware of how much your credit scores can fall or how long it will take you to repair the damage. You should because credit scores can boost or drain one’s finances.

According to Experian, a single 30-day-late payment will lead to the ding of 90-110 points if you have a good credit score of above 780 and a drop of 60-80 points if you have a score of say 680. However, the number of points that your credit score can drop when a late payment is added to your score depends on many factors. The FICO scoring models will consider all the points given below to determine the impact a late payment will have on your credit score.

  • It depends on how long you wait before paying the bill. Your payment will be reported after 30 days past the due date and again after 60 days, then 90 days and then again after 150 days. The longer your bill goes unpaid the greater will be the impact on your credit score. And after that, your account will be written off as a loss of charge and that will be very bad news for your credit scores.
  •  
  • Late payments that have occurred in the past year do more damage than from several years ago. So, your recent credit history severely harms your credit score but this negative impact lessens over time.
  •  
  • The number of points your credit score can take a ding also depends on the number of late payments on your credit report. If you have many late payments already then you are on the low end so the addition of one more late payment may not cause a lot of damage to your credit score as most of the damage has already been done.
  •  
  • The amount of your late payment can also play a role as a small amount of say $200 and $300 will not harm your credit score as say a $300 and $3000 late payment. So the more you owe the more your score drops.

OTHER POTENTIAL PENALTIES OF LATE PAYMENT

  • You will usually be charged a late fee by the lender and if you continue to miss the due date you can be charged additional late fees too.
  •  
  • The interest rates of your future loans will increase.
  •  
  • Your interest rate can be reset to a penalty annual percentage rates (APRS) or default, depending on the creditor’s policy. Credit cards penalty APR can go up to 29.99%
  •  
  • You can also forfeit your 0% promotional rate on a balance transfer card if you have one and it can be reset to the default interest rates. So, you will pay much more interest on your outstanding balance if this is done.
  •  
  • It will remain in your credit report for seven years so you may not qualify for a mortgage (at the best interest rates), get a personal or auto loan, or even receive the best credit cards or rewards programs.

HOW TO MASTER YOUR LATE PAYMENTS

You may be just forgetting to pay your bills or struggling to pay your bills, or just forgot to pay one small bill. Either way, there are ways to master your late payments.

  • You should select a payment due date that coincides with your paydays or a time when you pay all your bills together. Many credit card issuers do allow you to select a due date.
  •  
  • Set up bill payment email reminders or text alerts that will remind you about the bills that are due in a few days. If you require more than one alert you can set up multiple electronic prompts.
  •  
  • Consider setting up automatic payments, especially if you have made late payments in the past due to forgetfulness or being too busy. However, you should ensure that you have sufficient funds in your account so that you do not get to pay overdraft fees. Once you start paying your bills on time your credit scores will begin to improve over time.
  •  
  • Even if money is tight you can review your budget. You may be able to find ways to cut back on spending and make it easier to pay your bills on time
  •  
  • Prioritize which payments you need to pay if you do not have sufficient money to pay all bills. The essential bills like mortgage, rent, and utilities should be paid first. Then pay the bills that have a hefty late fee. Finally you can pay the bills that are about to go into collections.
  •  
  • Finally, a smart move would be to set up an emergency fund that will help you when you have unexpected expenses.
 

 If you need help to improve your credit scores do contact our financial experts at Zinucreditrepair.com.

6 Times When You Are Smart Not to Pay Off Your Mortgage Early

Plenty of homeowners would like to pay off their mortgage early as it is a hassle and a headache. Itis their largest monthly payment and takes out a good chunk out of their budget.

It is understandable as there are many reasons to pay off your mortgage early. It will not only help yousavehundreds (even thousands) in interestbut will also helpyoufeel secure at the thought of owning your own home.

At the same time, there are benefits of not paying your home loan ahead of schedule.

The approach which is better for you will depend on your financial situation and goals. If the following situations apply to you, sticking to your mortgage payment schedule and using the extra cash for other purposes will be the best option.

1. You Do Not Have a Hefty Source of Emergency Cash.

Financial ups and downs are inescapable. Though the house you own free and clear is a significant piece of wealth, it is not something that you can quickly convert into cash in a crisis. It takes months even in a strong market to sell a house. You could secure a home equity loan more quickly but this also will take a few weeks and will put you back into debt with possibly a higher interest rate than you had on your original mortgage.  So, the best way to ensure that you can cover any unexpected expenses like a job loss or medical bills without having to take on new debt is to make sure that you have set aside a healthy “rainy day” fund to cover at least six months’ worth of household expenses. 

2. You Want to Lower Your Tax

Before you decide to reduce your mortgage debt, make sure you have fully funded any tax-advantaged account such as 401(k) or individual retirement accounts(IRAs). According to Patrick Whalen, a certified financial planner at Whalen Financial Planning in Los Angeles “Paying off a mortgage early competes with the priorities that can help lower your taxes, like funding a 401(k) plan up to the maximum amount.”

The tax advantages of these contributions coupled with the potential for long-time growth in your retirement investments makes them the first place you should be stowing any extra cash you have.

3. Is There A Prepayment Penalty On Your Mortgage?

Prepayment penalties are rare in new mortgage contracts but some older mortgages containrequirements that you must pay several thousand dollars if your mortgage loan is paid off ahead of schedule.

Prepayment penaltiescould be the equivalent of a certain number of monthly interest payments or equal to a percentage of the mortgage loan amount. So, if your mortgage loan contains such a prepay penalty clause you should compare the penalty amount with what you will save in interest by paying off the loan early. You should make sure that you do not lose money by triggering a penalty.

4. You Can Earn a Better Rate By Investing

The smartest choice to make when you have extra cash to pay off a mortgage loan with a low-interest rate is putting it into the stock market or mutual funds and building up a diversified portfolio. It is reasonable to expect a long-term return of 6 to 8 percent when you invest in a broader market.Meanwhile, your mortgage rate may be around 4.5%, so over time you are likely to earn better returns on your money and can benefit from years of tax breaks and be much better off in the long haul.

5. You Have Other Debt

The mortgage loan should be the last debt you pay off. If you are payingother debt that has higher interest rate such as car loans, school loans, credit card debt or home equity lines of credit, it is technically better to put any extra funds towards these debts than your mortgage.

Many of these debts can carry 0%interest at least for a time. However, in most cases, these 0% deals apply to either temporary or relatively short term loans. So, paying off these loans should always be a higher priority than your mortgage loan.  

6. You Are Still Savings For Big Purchases

It is not enough to only pay off debt and save before tackling the mortgage, you should make sure all your future cash needs are addressed. Generally, you should plan to cover all significant expenditure for at least the next five years or preferably for ten years that include:

  • Child’s education
  • Home remodeling,
  • Car purchase
  • Wedding
  • Vacations

There is no point of paying off a mortgage early if you are getting into more debt for a large purchase.

HOW WOULD PAYING OFF YOUR MORTGAGE LOAN AFFECT YOUR CREDIT SCORES?

They will not be a dramatic change in your credit scoreas a consequence of closing your mortgage loan. But closing credit cards can hurt your credit score as it reduces the total amount available to you to borrow. Mortgage loans like paid off student loans and auto loans will remain on your credit reports for 10 years as a “closed account in good standing.”

FINAL WORD

 Whether you should pay off your mortgage early or not depends on how much money you have to spare, what other alternatives you have and other factors that are unique to you. If paying off your mortgage loan early is on your radar you should seriously consider all your options so that you are sure it is the best path forward for you.