This article was written by Hala Baig, a client happiness specialist at Earnest.
Vacations, busy schedules, different due dates for different bills. Most of us have the good intentions of paying our bills on time, but we know sometimes life has a way of getting in the way.
The good news is that technology makes it easier than ever to never make a late payment again. The bad news is that late payments can cost you in a couple ways.
It’s important to stay on top of your bills—especially when it comes to your student loans—and remind yourself just why it’s such a big deal to hit the due date every month.
Late Payments Could Cost You
First, let’s take a closer look at how making payments after their due date could cost you.
While Earnest does not charge late fees, many lenders do. The size of these fees can vary depending on the type of loan you have, the length of time that has passed since the payment was due, and more.
Some lending companies, such as credit card companies, may even increase your APR as a penalty for making even a single late payment.
While paying a fee is one thing, making late payments can also have a significant impact on your credit report. Your repayment history is one of the largest components in calculating your credit score. According to FICO, which calculates one of the most widely used credit scores, your payment history makes up 35% of your score.
To be sure, one late payment by only a few days is not going to ding your score by much—but a pattern of missing payments is likely lower your credit score. That means a history of multiple late payments may make getting approved for additional loans, like for a car or home, more difficult and expensive in the future.
If you fall far behind on your payments, your debt could be transferred to a collections agency. Debts that are in collections have a much larger adverse impact on your credit and are more difficult to resolve than a single missed payment. Not to mention, collections agencies can be aggressive in their outreach, calling you several times a week to attempt to get you to pay.
6 Ways to Improve Your On-Time Track Record
The good news is that it’s easier than ever to stay on top of your bills and never miss a payment.
Here are some ideas to consider to make sure you’re on the right track:
1) Refinance or consolidate your loans
When it comes to student loans, keeping track of multiple due dates for multiple loans can be tricky. Consolidation or refinancing can help by gathering multiple loans under one new loan—which means only one bill to pay each month. If you have other bills, you can also consider consolidating some of your debt by using a personal loan.
2) Sign up for autopay
Autopay makes staying on time with payments thought- and stress-free. Some lenders, including Earnest, offer a discount on your interest rate for using autopay for student loans. Use this feature to set up your payments automatically—for all your loans, whether it’s a credit card or auto loan—to make sure your minimum payment happens no matter what.
3) Check your mail or email
By law, credit card companies must notify you 21 days in advance of your payment due. Other lenders will often send you notice as well that your payment will be due soon, so keep an eye on your mail or email. Go a step further and set up recurring reminders on your calendar before your payment to make sure you’re always ahead.
4) Download the app
Chances are your lender or bank has an app to help keep your accounts easily accessible no matter where you are. Download the apps—you can download the Earnest iPhone app here—to schedule, track, and change payments on the go.
5) Pay early and extra
If you remember that you have a payment coming up and want to get it out of the way, you can always pay early. (Of course, you’ll want to make sure that your lender does not have any pre-payment penalties.) Similarly, if you have some extra cash at the end of the month, apply it as an extra payment. It eliminates the chance of paying late and also can you help pay off your debt faster.
6) Take responsibility
If you do fall behind on your payments or know in advance that you won’t be able to make your next payment, the best approach is to be honest with your lender. Reach out and explain your situation. Many lenders, including Earnest, may be able to work with you if you have trouble making payments. If you’re going to be late on a federal student loan, you will want to contact the servicer; you can find their phone numbers here.
But make that phone call as soon as possible. The further behind you fall, the more difficult it will be for your lender to work with you to come up with a plan to keep you on track and maintain the positive payment history that you’ve built to this point.
When you take on debt, whether through a student loan or with a credit card or mortgage, you are making a commitment to be financially responsible and lenders take this commitment seriously, and so should you. The more conscious you are of making your payments on time, the more likely you will have access to more credit at better rates in the future.
Even if you don’t think you’ll need additional credit for a little while, remember that information on your credit report is reported for up to seven years and re-establishing a strong history of repayment doesn’t happen overnight. So make those payments on time — you will thank yourself for doing it in the future!