You know you should pay all of your bills on time. But what if you’re short on cash this month? Is it better to pay certain bills late?
Yes, actually. Some bills are not reported to the three national credit bureaus of TransUnion, Experian, and Equifax. Bills in this category include utility bills, cell phone payments, medical payments, and cable bills. This doesn’t mean that you should pay these bills late. But if you have to do some emergency financial juggling this month? Pay your cable late, not your mortgage or credit card payment.
Here are five bills you should always pay on time, each month. Not doing so could damage your credit, leave you with huge financial penalties, or even cause you to lose your home or car.
1. Your mortgage. Dave Hardin, president of Hardin Financial Group in Troy, Michigan, says that no late or missing check will hurt your credit score more than a missed mortgage. A single late mortgage payment can cause your credit score to fall by 100 points.
“If you pay that late, that will have the single greatest effect on your credit score,” Hardin said. “Your mortgage is the big one.”
If you miss too many payments, your mortgage lender will foreclose on your home, evicting you and taking ownership of your property.
But don’t panic if you’re two days late on paying your mortgage. As Hardin says, your mortgage lender won’t report your payment as officially late until it is at least 30 days past the deadline. This gives you some leeway if you are struggling to scrape together enough cash to pay your mortgage this month.
“That doesn’t mean you should wait that long to pay your mortgage,” Hardin said. “But late officially means 30 days late, not two days.”
Paying your mortgage bill late can also set you up for future financial pain. Kyle Winkfield, managing partner of O’Dell, Winkfield, Roseman & Shipp in Rockville, Maryland, says it’s easy for your finances to spiral out of control when you miss a mortgage payment.
“Say you miss your $2,000 mortgage payment one month. Now you have to come up with $4,000 the next month to catch up,” Winkfield said. “That’s not easy.”
2. Student and auto loans. You should never miss your student or auto loan payments either, Hardin said. That’s because these are fixed payments that you know are coming up each month. Missing fixed payments is a big deal because lenders are more likely to believe that you didn’t send in your payment not because you forgot about it, but because you couldn’t pay it.
Your car payment is an especially important bill, because your loan is secured by your actual car. This means that lenders have something to go after should you stop making your payments.
“Be vigilant about making your car payments,” said Scott Sadar, executive vice president of Somerset Wealth Strategies in Portland, Oregon. “If you are not, your car could be repossessed.”
Again, these payments aren’t officially late until 30 days have passed.
3. Credit card payments. Missing your credit card payment could leave you with a double whammy of pain. First, credit card companies will report your missed payments to the credit bureaus if you are 30 days late or more, causing your credit score to fall.
Secondly, if you pay late by 60 days or more (in some cases less), your credit card company can assess a penalty interest rate on your card. This can be financially devastating if you carry a balance on your credit cards each month. Sadar says that these rates can hit 22 percent or higher, which can cause existing balances to grow quickly, even if you don’t make any new payments with your card.
4. Your rent. It wasn’t until last year that Experian and TransUnion began collecting data for on-time rent payments. The third major national credit bureau, Equifax, still doesn’t do this. But even if the credit bureaus weren’t tracking your rent payments, you’d still want to make this payment on time every month. Simply put, you don’t want to lose your home, and missing too many rent payments could lead to that.
It’s not easy for landlords to evict tenants, and it will take more than one or two late payments. But if you fall too far behind, your landlord will start the eviction process, possibly leaving you without a place to live.
You always want to protect the roof over your head. That holds true whether you own a home or you are renting.
“You always want to protect the roof over your head,” Winkfield said. “That holds true whether you own a home or you are renting. Always make the payments that keep that roof over your head.”
Of course, you don’t ever want to be in the position where you can’t pay all of your monthly bills. Yes, paying your cable bill late one month isn’t going to destroy your finances. But if you’re juggling payments every month, that’s a sign that there is a problem. It’s also a sign that you need to take a closer look at your budget to determine if you there are expenses you can eliminate.
“Sometimes we get too wrapped up in our wants instead of our needs,” Winkfield said. “If things are tight — and we’ve all been there — then you might need to eliminate some of the wants from your budget.”
And if you are struggling to pay certain bills? Don’t hide. Hardin says that the best move you can make is to call the creditors behind the bills and explain to them that you are struggling. Many will work with you to find at least a temporary solution. If you call, creditors are less likely to report you as late to the credit bureaus.
“If you don’t call, the lenders have no choice but to think that you aren’t paying just because you don’t want to pay,” Hardin said. “You should not be embarrassed to call your creditors. You’d be surprised at how easy creditors make these conversations. They don’t want to lose you as a customer, so they usually are willing to work with you.”