How to get a Good Credit Rating and the Long Term Effects of Late Bill Payments

Money Money Money

It is not easy getting or maintaining a good credit rating, but the long term effects of late bill payments means it is essential in these unstable financial times. For those new to the game; school leavers and first time earners, it is important to understand the rationale behind the thoughts of suppliers and money lenders. For the rest of us, it is a timely reminder to look at how we handle our money on a monthly basis and reinforce our standing in the credit community.

How to Get a Good Credit Rating

Pay your bills on time!
Pay your bills on time! | Source

A Little Scenario of the Tough Times

Sometimes simply managing a budget may not be enough if all your bills are due at the same time. The electricity bill arrives on the same day as the phone account. Car registration is due along with the insurance. For home owners there may be council and water rates that all fall in the same month. It looks as if this is another month where you will only get to pay the minimum on the monthly credit card balances. The limp vegetables in the crisper will not supplement a meal, even when added to the staples in the pantry and the car is running on empty.

 

These are tough times and no one disputes that, but they can be turned around at any time. The situation may be a result of outside factors but the outcome of any situation is entirely up to you. Change it, move forward and take control of your finances.

As the Bill Comes In

Pay on or before the due date
Pay on or before the due date

Black Mark on your Credit Rating

When money is tight, the initial reaction may be to hold off on payments for the general utilities but this can have disastrous long term effects on your credit rating. For every overdue notice received, there is a black mark checked against you. Most people are unaware of the fact that if you make a late bill payment to one supplier that black mark will be used against you with all your other suppliers.

Long Term Effects of Late Bill Payments

There is no immediate cure. A bad credit rating can follow you for many years to come unless you make positive steps to improve the way you pay your bills. As painful as it sounds, preparing a workable budget, is a good start to correcting any past bad records and setting the scene for the future.

Set Aside a Small Percentage

Money in the bank means funds for emergencies
Money in the bank means funds for emergencies

Keep the Lines of Communication Open

Talk to your suppliers, make arrangements
Talk to your suppliers, make arrangements

Pay on Time

The more regular you are with bill payments, the better it will look on your credit score or credit rating.
The more regular you are with bill payments, the better it will look on your credit score or credit rating.

Simple Steps to Avoid Late Bill Payments

  • Prepare a budget based on yearly income
  • Allocate for essential items on a weekly basis
  • Set aside some savings for future emergencies
  • Talk to your suppliers

Prepare a Budget

As painful as it sounds, preparing a workable budget, is a good start to correcting any past bad records and setting the scene for the future. Have a good look at your expenses and previous payments for the year and make calculations for the next year.

Allocate the Essentials

By averaging out your weekly payments you can allocate the necessary funds for essential items on a weekly basis. Take into account that the first year you will need additional funds. If the car registration is due in January, a weekly proportion is not going to cover that initial payment.

Save a Small Percentage of Income

Putting aside a decent percentage of income for savings that can be accessed for emergencies will help with those payments that come up unexpectedly. Ten or twenty per cent of your income (if you can manage it) will see you in a solid financial position after six months. If you have budgeted well and saved some of your income, at the end of the first year you will have enough to cover all your monthly bills as they fall due.

Keep the Lines of Communication Open

When all else fails and the phone bill arrives or the electricity account is looming, pick up the phone and call your suppliers. Let them know you are having trouble meeting your requirements. You may be pleasantly surprised at how accommodating the major utility companies are if you approach them for alternative terms of payment.

Improve your Credit Rating with some Simple Steps

By applying some basic steps to the way you handle your weekly finances you will be well on your way to improving your credit rating. This will put you in good stead for future relationships with your bank or financial institution when it comes time to ask for some serious dollars.

Forming a sound relationship with your finance provider from the beginning could mean the difference between a yes or no on your home loan request. Paying bills on time sets the scene. If the major utility companies are happy with you the more chances you have of being approved for loans; personal, business, home mortgage or even for investment, when you need them.

Copyright © 2010 Karen Wilton

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Comments 12 comments

soni2006 profile image

soni2006 5 years ago from New Delhi, India

This is a wonderful advice on getting a good credit score. I know the negative effects of late bill payments as I have faced this problem. I am still learning and your hub is very helpful to me.


Karanda profile image

Karanda 5 years ago from Australia Author

Thank you soni2006, coming from you this positive comment means a great deal. I, too, suffered early in not realising the benefit of paying bills on time. A good credit rating can be squashed with late bill payments.


travelespresso profile image

travelespresso 5 years ago from Somewhere in this exciting world.

Excellent work Karanda and you have found some great graphics to accompany your hub. I enjoyed reading it.


Karanda profile image

Karanda 5 years ago from Australia Author

Thank you travelespresso, I hope it helps some first income earners for their life's journey into the frenzied world of finance. I had a lot of fun with Clip Art for the graphics and appreciate you picking up on that.


ssaul 5 years ago

oh yea i know all about this too well, thanks for sharing! i think it is unfair that credit company charge late fees even if you are one day late. I thought congress in the US repeal this kind of practice about late fee where Americans don't have to pay late fees anymore on their credit cards. This act was pass last year!


Loren's Gem profile image

Loren's Gem 5 years ago from Istanbul, Turkey

Great share! Haven't known much about credit ratings, etc. until after I came across this hub. Thanks for sharing. :-)


Karanda profile image

Karanda 5 years ago from Australia Author

Ssaul late fees are currently being looked at in Australia too. The worst part is that it effects people already struggling with late bill payments.


Karanda profile image

Karanda 5 years ago from Australia Author

Thanks for reading Loren's Gem. I was surprised to learn how much of our past credit history effects our current status or credit score.


Simone Smith profile image

Simone Smith 5 years ago from San Francisco

These are wonderfully sound, useful tips! Thank you for sharing them.


Karanda profile image

Karanda 5 years ago from Australia Author

Thanks Simone, I certainly hope someone can get something out of them.


vrbmft profile image

vrbmft 5 years ago from Yucaipa, California

Useful tips, Karanda. Especially the one about communicating, altho I am not good at that. I am always surprised, well not always, but enuf times at how helpful it is to communicate with the creditor, to give this tip credence. I am self employed and no excuse, but when I lost a 3200 dollar a month contract a few years back, I have not been able as yet to fill in that gap, but beginning to make some headway here recently in terms of reorganizing and being more accountable and keeping up with books. I do everything myself, because I cannot afford to pay for help, but I realize now I have to find a way to afford help!! Interesting paradox.

It will be an interesting year for me.

Again thanks for the informative, clear, simple hub.

The issues are all the same up here or down under! And when it comes to credit at this stage of my life, unfortunately, I live down under!! But it will change again.

Vern


Karanda profile image

Karanda 5 years ago from Australia Author

Sorry to hear of your troubles Vern. I spent most of my working life as a bookkeeper or in the finance field in some way or another. Because I did it for so long, I can't think of anything worse than being accountable and keeping up with the books.

Creditors are really quite flexible in that at the end of the day, they just want their money. Sometimes they will happily come to an arrangement that suits both parties. Best of luck in riding out the storm.

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