Ignoring your creditors is the second worst action you can take regarding your credit. Yes, it is an action. You toss their letters in the garbage. You do not answer the phone when they call. You delete their messages. These are all actions. The worst action you can take is to not pay your creditors on time.
I have been guilty of this mistake in the past myself. I have ignored the letters. I’ve received the first, cordial letter that says something like, “If you have forgotten to pay, please do so immediately, because your account is behind.” “If you have already paid, please disregard this letter.” I have also ignored the letter on blue, pink, or red paper! The red letter is usually the final warning that further action will be taken immediately, which typically means legal action. This is absolutely the wrong move to make. It not only exposes you to further damage of your credit score, but increased late and legal fees. If you cannot pay, call them back. Speak to the nice customer service representative, in a friendly tone, and ask what are your options. Your options may include skipping a payment (deferment), partial payment, refinancing, etc. If you do not receive a satisfactory answer, then ask to speak to a manager or supervisor. Managers typically have more power and options for you beyond the first person that answers the phone. It is very important that once you have come to an agreement that you follow through and make the payment as promised. If you do not, your creditor has little to no reason or obligation to give you a second or third opportunity to bring your account current.
I hesitate to bring this option up; however, if you cannot make your payment by the due date you must make sure to pay BEFORE it is 30 days late. This is not a desired option because not all creditors report to the credit bureaus at the same time. I would never suggest paying a creditor 27-28 days after your payment is due. This practice causes bad habits and will hurt you eventually. I have counseled individuals that believe their credit score is poor because they pay their bills late “every now and then.” I had a client tell me that she never pays her bills on time. After reviewing her credit report, she did not show 1 late payment on any of the three credit reporting bureaus. I learned from her to ask follow up questions. If I had inquired further, I would have realized that she may not pay by the due date every month, but she has never been 30 days late. This is the first bench mark that is reported by creditors to the credit bureaus. Did she hurt herself with those individual creditors by paying late, incurring late fees, and possibly higher interest? Yes. However, as far as outside creditors that may be inclined to judge her creditworthiness, she was a more than acceptable risk.
If you ever find yourself in a situation where you cannot pay a bill by the due date, contact your creditor. I do not advocate paying late; however to preserve your credit history with a mortgage, credit card, auto or installment loan, follow the advice above.
That being said, your credit report shows when you are current or 30 plus days late. You must remember that the reporting system is not perfect. I can envision a scenario where your payment is due on the 20th of the month and somehow if you have not paid by the 30th of that same month, your credit report could reflect over 30 days past due. Although disputing errors on your credit report is easier now than ever, who really wants to go through that process if you don’t have to do so.
Pay on time, every time. Budget gurus who give advice about how to trim the fat in your budget often suggest avoiding late fees, bank fees, and the morning latte at your favorite coffee spot. I have never heard one of them mention increasing your credit score. I will go out on a limb and say that increasing your credit score will save you more money in the long run than carrying a bag lunch. The $20-$30 a month you can save on an auto loan alone can be more beneficial with a better credit score.
Ignoring creditors will never resolve your issue. Your issue could be short term or long term. Whatever the case may be, it is best to keep open lines of communication and follow through by paying your obligations. As usual, stay tune…come back for more great reads from THE 800 Credit Score Man.