Every now and then we all miss a payment for any one of the many monthly bills that fills our mailboxes every few weeks. From car loans and credit cards to utilities and mortgages, our financial obligations can seem overwhelming. Sometimes we are delinquent because we simply need a few extra days until we get our next paycheck, or until we can take care of other more pressing bills.  Other times, we simply forget to drop the check in the mail. At the end of the day, we may be hit with a $25 or $30 late fee and we move on. So we think. 

The cost of making late payments to our creditors can be much more costly than just the late fees. Our credit ultimately suffers, and it then becomes even more costly to borrow money or to get credit. Like it or not, our creditors keep track of your bill paying habits. Even if you “meant” to pay a bill on time, accidentally threw away a statement, or whatever your excuse, you are expected to make your payments on time.If you payment history shows that you missed a payment or failed to make a payment, this information can be passed along to the credit reporting agencies that provide each of us with a credit score. This can be a big deal.

Our credit score (FICO) is a measure that is used by creditors including mortgage companies, credit card companies, car companies, among others that affect the terms and conditions on which credit is extended to us. When we apply for credit or a loan, any late payments from other accounts that appear on our credit report can come back and haunt us in the form of higher interest rates. And, higher interest rates mean bigger monthly payments. It is these higher interest rates for home loans, credit cards, and other debts that cost us the most – not the $30 late fees. Moreover, instead of receiving the lowest, most competitive rates, we are forced to accept less favorable terms which translate directly into higher monthly payments and unnecessary financial stress every month. This only compounds our financial problems.

Now, think about the real value of having good – if not excellent – credit. On home loans, your can reduce the interest rate by two, three, four or more points which can easily save you hundreds of dollars on your monthly mortgage payment. The same applies to savings on car loans and credit cards with favorable rates. Therefore, in addition to lowering your monthly obligations to creditors, you also can pay debts down faster, start a savings plan, or invest your money elsewhere. Before you decide to let a bill slide this month or next, remember that the cost of injuring your credit is much more than just a late fee. Believe it or not, it is much better to let your bank or creditor know ahead of time that you will be late on a payment or need more time. More often than not, they will be willing to work with you to make alternative arrangements – including making a partial payment. If you are proactive, they can help you and your credit.

Thinking that these problems will just go away will cost you in the long run. It is our individual responsibility to strengthen and protect our credit score. Always keep in mind the benefits of having good credit – lower interest rates, more favorable terms and conditions, as well as lower monthly payments. Having good credit is one of the first steps to help you start building wealth.