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9.2 Credit Cards: A Tool, Not a Crutch

Strategies for Success:
What Do I Do If I Have Bad Credit?

We’ve probably all forgotten to make a payment on time, or at all. When Elena Maria finally got
her first credit card, she forgot to make a payment, and it was reported as a late payment on
her credit report. Most creditors will not report you as being late until you miss the second due
date (but don’t count on it!). One late payment would have minimal impact, but a history of
late payments would be very detrimental to your credit score. In the fine print of some credit
card agreements, credit companies may include a clause that allows them to substantially
increase your credit card interest rate if you miss a payment. Thus, a missed payment not only
negatively impacts your credit score but could increase your borrowing costs considerably.
This amusing yet informative video sheds some light on this process: https://www.youtube
.com/watch?v=g6_YvIhPKMk.
If you have bad credit, your primary goal should
be to stay on top of all payments and avoid late
or forgotten payments at all costs. You will have
to reestablish a history of good credit in order to
bring your credit score up. This takes time, and
anyone who claims that they can “fix” your credit
score fast (a popular scam) only wants to separate
you from your money.
Often payments are late or forgotten because you
never received the bill in the first place. Avoid this
problem by signing up to receive bills via your Newnow/iStock/Thinkstock
bank’s bill-pay website. This way your bank sends If you have a history of late payments
an e-mail alert that the bill is there, and you can on a loan, you will have to reestablish
see it is unpaid on your bank’s website. a history of good credit. This can be a
However, you should think twice before giving frustrating process that will take time,
a creditor access to your bank account to make but it is important for improving your
automatic withdrawals. To set up an automatic credit score.
withdrawal, you agree (in writing) to allow a
creditor to retrieve the amount you owe directly
from your checking account every month. Although this can be a convenient way to make sure
you never miss another payment, once you let someone have direct access to your account it
can be tough to undo. For those bills that you cannot receive electronically (e.g., a local utility
company bill), put an automatic monthly repeated reminder on your phone or other electronic
calendar when that bill is due; if you don’t get it in the mail, call the company immediately.
To learn more about common mistakes that affect your credit score, check out this link:
http://www.creditcards.com/credit-card-news/fico-credit-score-points-mistakes-1270.php.
Reflection Questions

1. Why do late payments hurt your credit score?
2. What measures can you take to improve your credit score?

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