Get Credit for Making Smart Financial Decisions
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Get Credit for Making Smart Financial Decisions
Smart Financial Moves: Protect Your Credit Score
The Cost of a Missed Credit Card Payment
Imagine this: it’s the end of the month, and you're juggling a stack of bills. You’re tempted to prioritize a fun weekend getaway with friends over paying your credit card bill. It seems harmless to skip just one month, right? Think again.
Skipping a credit card payment, even for 30 days, can have serious consequences. It could cost you thousands of dollars in the long run.
The Impact of Late Payments
"Missing payments is the quickest way to harm your credit score," explains Chaomei Chen, head of credit risk at Washington Mutual. "On the other hand, timely payments are key to boosting your score."
Understanding Your Credit Score
Your credit score is calculated based on data from your credit reports, maintained by the three major bureaus: TransUnion, Equifax, and Experian. This information is analyzed to create your "FICO" score, ranging from 300 to 850. A higher score often results in lower interest rates for loans such as mortgages and car loans.
How Late Payments Affect Your Score
Even a single late payment can have a significant impact, especially for those with high credit scores. Chen highlights that a delay might not affect someone with a low score much, but for those with excellent credit, it could drop their score by up to 100 points. This can ultimately add thousands of dollars in interest over time.
Consider the Long-Term Costs
For example, let’s consider a $250,000 home loan. A consumer with a 700 FICO score might have a monthly payment of $1,614 on a 30-year fixed mortgage. However, with a 550 score, the same loan could cost $2,094 a month. That’s a difference of $480 monthly, adding up to $173,000 in additional interest over 30 years. Suddenly, that weekend trip doesn’t seem worth it.
Tips to Improve Your Credit Score
Washington Mutual, the only U.S. credit card issuer offering free online access to FICO scores, suggests these tips:
- Pay more than the minimum on your credit card each month.
- Keep balances low, ideally below 50% of your credit limit.
- Review your credit report annually to ensure accuracy.
Final Thoughts
Don’t let a late credit card payment derail your financial future. Prioritize smart financial decisions and protect your credit score by paying all bills on time.
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