Paying your bills on time is an important habit that everyone should learn. Keeping up to date with regular payments shows you can manage your finances properly and will positively impact your credit score. This is particularly helpful if you are considering a small loan application in the future.
Not paying your bills on time, on the other hand, provides many negative consequences.
It can result in a poor credit score and possible defaults, making it difficult for you to obtain credit and build financial security.
Here CashLady looks at four reasons you need to pay your bills on time.
Paying your bills on time
Money can be tight, and you might prefer to spend your hard-earned cash on something more exciting than paying your council tax or utility bills.
Paying your bills on time, however, isn’t optional.
Service providers will typically send you a reminder but failing to pay on time without getting in touch could result in cancellations of your service and default on your account.
If you are late paying for other items, like your credit cards, then you will be charged a late payment fee and might find your interest rate going even higher.
The sooner that you get into the habit of paying your bills on time, the better.
One of the easiest ways to ensure regular payment is to call up your providers to set up a direct debit on or after the day that you get paid.
Four reasons why you need to pay your bills on time
#1 Building a good credit score
Paying your bills on time will help build a good credit score.
Your credit score is a reflection of how you manage your finances. When applying for any type of credit, such as a credit card or mortgage, this one of the key areas that a lender will check.
Missed payments show up on a credit file and will drag down your credit score and even worse, defaulted payments stay on your file for six years.
Defaults typically arise after you have been sent a late payment letter but ignore it. Once the debt is passed to a debt collector, it shows as a default.
You will find it very hard to obtain credit with a default on your credit file.
#2 Improve your chances of a mortgage and owning a home
Paying your bills on time is going to make it much easier to obtain a mortgage to by a home.
Lenders like to see that you can manage regular payments and won’t default on your mortgage, which is likely the largest amount of money that you will ever borrow.
Buying a home can be a stressful time and you want to obtain the best rates on a mortgage that you can – meaning that you pay back less interest.
One of the easiest ways to secure this is simply by paying your bills on time and keeping a close eye on your credit score.
#3 You could get better rates on credit
Paying your bills on time won’t just potentially impact good rates on a mortgage.
Whether you are applying for a loan or a credit card, lenders will all base a large part of their decisions on whether to lend to you and what the rate will be on your credit score.
For the ‘cheapest’ credit, keep paying those bills on time.
#4 Pay your bills on time for financial security
Keeping on top of your finances and paying your bills on time might not sound particularly glamorous or exciting but it will provide peace of mind and a good night’s sleep.
Worrying about money is a common problem but paying your bills on time will help alleviate much of this stress.
Imagine a life with no dreaded reminders coming through the door, calls from debt collectors, or the threat of your electricity being cut off.
It’s also extremely satisfying to watch your credit score grow.
With an improved credit score, you can relax safe in the knowledge that should you need to borrow money for home renovations or take out interest-free credit for a new sofa – then you will be likely to get it.
If you are having trouble keeping up with your debts then speak to someone at Money Advice Service for free and impartial help and advice.