When was that due again?

Recently, I have had conversations with a few friends of mine where they revealed to me that they don’t necessarily pay certain bills on time. Don’t worry; you will remain nameless but please, tell me what your logic is? The way they were talking, it was as though it was almost like second nature for them. The bill comes; the due date is listed; they then make their own schedule for repayment. That works fine when we’re talking about a few days between the due date and payday. These friends of mine though are carrying balances with their cable providers and somehow deluding themselves into thinking there won’t be any consequence.

When you don’t pay your bills on time, your credit rating is affected. It sounds simple enough but from what I know, most people don’t have a strong understanding as to how their credit ratings are established. There are a number of factors that have absolutely nothing to do with how much debt you have and how you manage it. (I will get into these some other time). That said, these other factors bare nowhere near as strong an impact on your rating as how you manage your debt does.

Late payments on debts like credit cards, loans and lines of credit are reported depending on how late they are. They range in severity from being late within 30 days from the due date, 60 days and 90 days. Anything past that is like getting a big “F” on your report card – it isn’t clear just how bad you did but you failed and you failed hard. Of course, completely defaulting on your debts is pretty much worse than a failing grade but we’re looking more at short-term mismanagement here.

There is also a financial impact on you when you don’t pay your bills on time. Your credit card companies may not charge you a higher interest rate on a late payment amount but you are paying interest on a larger debt than you should be. Let’s say you owe $5000 and your minimum interest payment was $100. If you miss that payment, you are now paying interest on $5100, or basically interest on top of interest. That might not seem like a lot of money to you, especially when you weigh it against the inability to make your payment on time but the fact is it remains interest that you shouldn’t have to pay.

If you truly cannot pay your bills on time, choose which ones you will pay wisely. Don’t assume that missing your cell phone bill or your gym membership is better than missing your credit card payments. Cell phone providers report just as religiously as credit card companies do. In all my years banking, I’ve seen a fair share of credit reports and I can confidently say that utility companies, like electricity or gas, are the least likely to report your short term missed payments to the credit reporting companies. And a $10 late payment is still a late payment regardless of the how small it is.

The best way to stay on top of your payments is to write them down on a calendar or in your agenda. And if you haven’t seen a copy of your credit report in some time, get a hold of it so you can at least figure out where you stand. Oh, and you should definitely pay all those parking tickets in your glove compartment – those look real bad on your report.

Note about the author:

Joseph Belanger is a Toronto-based writer who blogs about film at www.blacksheepreviews.com