By Ronald Klein – KeyBank Senior Area Retail Leader
Figuring out how to improve your credit score in anticipation of a major purchase like a home or car is a smart move. The better your credit score, the lower your cost to borrow money to make that purchase.
While credit scoring companies weigh a variety of factors in evaluating your credit history, your credit payment record is the most important component on the list. The surest way to boost your credit score is to consistently pay your bills on time.
Bill payment history accounts for 35 percent of a FICO score, according to MyFico, the consumer website of the most widely used U.S. credit scoring company. FICO scores typically range from 300 to 850 points. An excellent rating, earning the lowest rates on loans, is 760 or higher. Even one missed payment to a creditor can have impact on your credit score.
Payment History Exam
In reviewing your payment history, credit scorers look at accounts from major card issuers like Visa, Mastercard, American Express and Discover; retail store accounts; installment loans; finance company accounts; and mortgage loans.
Just as with your overall credit score, the grade you receive for your bill-paying record depends on several things. For instance, if you’ve had any late payments, FICO wants to know how late they were. A 30-day delinquency won’t count as much against you as being late three months or more. Other considerations include the total number of late payments you’ve had, how much you owed your creditors at the time and how long ago the last delay occurred.
The more recent the late or missed payment, the bigger the mark against your credit score. Credit reporting agencies automatically delete late payments from their reports after seven years.
Ready access to your FICO score is a useful tool. Holders of a KeyBank consumer credit card enjoy that access as a benefit of online and mobile banking.
Avoiding a Bad Score
One way to avoid having your credit score dinged for late payments is to create and stick to a budget that prioritizes credit payments above discretionary spending like eating out or adding to your wardrobe. It also might help to put all your payment due dates in your calendar – whether digital or the old-fashioned paper kind. Set up automatic payment for your bills, which can help ensure you won’t get your credit dinged by a little absentmindedness. You can use Bill Pay to schedule and keep track of payments.
If you’re having trouble paying your bills, there are steps you can take to soften the blow to your credit score and buy some time to get your money management back on track. Most credit card issuers offer hardship programs that will cut customers a break – in the form of adjusted due dates, reduced interest rates or waived fees – when they lose a job, incur unexpected medical expenses or encounter other financial challenges. But you’ll need to contact them early to request this help. Once you get three months or more behind, they may not be as flexible.
A certified credit counselor can offer free or low-cost guidance to help you work out a plan to get your delinquent bills paid as quickly as possible. This Federal Trade Commission guide has tips on finding a credit counselor.
Not paying your bills on time will put a serious dent in your credit score. The good news is that even if you have a few late bills in your past, you can earn points for good bill-paying behavior going forward.
About the author: Ronald Klein is Senior Area Retail Leader for KeyBank in Central New York. He may be reached at either 315-470-5295 or [email protected]. KeyBank is Member FDIC © 2021. KeyCorp. CFMA #210517-1061779
SIDEBAR: A Look Back, a Look Ahead – Learning the Financial Lessons of the Pandemic
COVID-19 altered nearly every aspect of our daily lives. The pandemic also put Americans’ financial preparedness skills to the test. But the lessons we learned about how to manage our personal finances are principles that stand the test of time. Here are a few tips to help guide you as we all continue to move forward:
Build Your Emergency Fund
The financial impacts of COVID-19 highlighted that few people are immune to job losses, pay cuts or unexpected expenses. Government stimulus measures helped ease the pain, but many Americans still found it necessary to tap into savings to help make ends meet. Make your emergency fund a priority. Build at least a three-month cushion. Financial experts have always recommended saving enough to cover between three and six months of living expenses. In light of what we’ve faced, the wisdom of this basic tenet continues to resonate.
Create a Budget and Spend Wisely
Prior to the pandemic, many Americans spent their income without giving it much thought. Unemployment was low and credit was readily available. It wasn’t uncommon for some people to live paycheck to paycheck. Now, as we know, spending needs to account for saving. But it’s not necessarily difficult to make cuts. The extended pandemic showed it’s possible to give up many expenses from the pre-COVID-19 era. Line items like travel, dining out, entertainment and even the cost of owning a second car have been among the most expendable. To keep the momentum going, make a spending plan. The pandemic was an opportunity to break unsustainable cycles of spending – and to develop new and improved spending habits. If you don’t yet have a plan, create one to help you stay on track.
