TALE OF THREE CREDIT CARDS
Establishing good credit using a credit card, for me in the beginning, was no easy task. Every now and then, I was tempted to put off my credit card payment for a few days, especially when I was low on cash and had a bunch of other bills. Sometimes even knowing the consequences didn’t give me just the push I needed to send my credit card payment on time. I could rationalize a late fee, even learn to live with a penalty interest rate increase; or worse, I chose to suffer the credit score damage from a late payment. What I had to learn to do was push those thoughts aside and instead think about the benefits of making my payment on time.
My account stays out collections
More credit card companies are turning to debt collection agencies when their customers don’t send credit card payments on time. Even the smallest credit card balance can get sent to a collection agency if it goes unpaid for several months.
Once an account is in collections, you no longer have the option of making minimum monthly payments. The collection agency will demand the full balance and sometimes even an additional fee, as allowed by law. Collection agencies contact you repeatedly until you pay up and can even place the delinquent account on your credit report. Just try getting credit on anything else if your delinquency is put on your credit report! The bottom line is…pay on time and you can avoid dealing with debt collectors.
I enjoyed lower interest rates
Late payments have cost me low interest rate. Credit card issuers were allowed to increase my interest rate because I was more than 60 days late on my credit card payment. The penalty interest rate on my credit card was as high as a staggering 30%.
While the penalty rate did expire because I paid on time six months in a row, on one card, the penalty rate continued to be applied to new purchases on other cards as long as I had those credit card because it had been reported to the 3 credit rating companies and now effected my credit score. (Credit card companies continuously check your credit score. When your credit score goes down, your interest rate goes up because you are a higher credit risk.) Not paying your credit card on time allows you to triggering a higher interest rate on your credit cards.
I learned to avoid late fees
I learned to make my credit card payment before the due date to avoid the risk of missing the payment cutoff time.
You can be charged a late fee just minutes after your credit card payment is due. I avoided expensive late fees (between $15 and $35) by sending my credit card payment on time.
Enjoy the animated “Tale of Three Credit Cards” to give you a another view of understanding credit card use.
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You can improve your credit score.
Thirty-five percent (35%) of your credit score is based on whether your credit card payments are made on time. Your credit score benefits the most if you consistently make your credit card payments (and all your other payments) on time.
Get lower interest rates.
Insurance companies increasingly use your credit score to determine insurance rates, like your car insurance. When late credit card payments lower your credit score, your insurance rates could increase when it’s time for your renewal. Sending your credit card payment on time helps you get the lowest insurance rate and therefore helps you save money.
Learn to keep your monthly payments low.
When your credit card payment is late, your next minimum payment will be more than double what it would have been had you not missed a payment. That’s because your next credit card payment will include two minimum payments and a late fee. If you have trouble making your credit card payment, putting it off won’t make it easier to pay. Instead, the opposite happens and it gets increasingly difficult to get caught up. Ideally you should pay off your charges in full every month.
Missing a credit card payment puts you at risk of having your credit card close. This could hurt your credit score, especially if you have a credit card balance. Keep sending your credit card payment on time so your account remains open and in good standing.
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