This Easy Trick Will Improve Your Credit Score and Avoid Late Payments
Paying bills on time is one of the easiest ways you can raise your credit score. Your credit payment history accounts for up to 35 percent of your FICO score, according to myFICO. Keeping track of due dates is one way to curb late fees. Splitting your bills into bimonthly payments, however, can not only help you avoid late or missed payments, it can save you money, too.
For week five of the GOBankingRates Credit Score Challenge, see how to raise your credit score by splitting your monthly payments in two and paying bimonthly. This trick can help you better manage your finances while making you look like a more reliable borrower.
How to Raise Your Credit Score By Paying Bills Bimonthly
This trick to boosting your credit score isn’t about doubling down on monthly bills — it’s about dividing payments in half and paying twice as often. To get started, follow these three steps:
- Itemize your bills: Make a list of your recurring bills and their due dates.
- Assign two days each month you’ll pay bills: To make matters easy, you can choose to pay bills each payday. If you are consistently paid on the first and the 15th of each month, for example, opt to pay bills on those days. Choosing to pay bills on your paydays will make it easier for you to remember to make payments.
- Calculate the cost of monthly bills and divide them by two: Tally up your monthly bills. If you pay $2,000 each month on bills, you will want to pay $1,000 in the first half of the month and then $1,000 in the second half. Because the amount you owe on bills fluctuates, so will your bimonthly payments. If your credit card bill, for example, was higher or lower than in the previous month, this will be reflected in how much you pay.
Why Multiple Monthly Payments Boost Your Credit Score
Dividing your monthly payment schedule into two installments can boost your FICO score. Here are three ways bimonthly payments can raise your credit score:
- Bimonthly payments can reduce credit utilization: Your debt-to-income ratio (DTI) should be less than 36 percent, according to Credit Karma. To lenders, the less debt you maintain, the more likely you will be able to repay debts. Making bimonthly payments reduces your DTI throughout your billing cycle. No matter when your lender reports to credit bureaus, your bimonthly payments will keep your DTI lower, helping raise your credit score.
- You’ll pay down debt faster: If you pay back loans bimonthly, you’ll pay off debts faster. With a typical payment plan, you make 12 full payments each year on your mortgage, auto or credit card debt. With bimonthly payments, you’ll make 13 full payments each year. That’s one extra payment each year. By paying off your debt just a little faster, you can save money on interest by paying more toward your principal. This type of payment plan is considered proactive credit behavior, which gets logged on your credit report, effectively playing a part in raising your credit score.
- Bimonthly payments build better financial discipline: By adopting a bimonthly payment plan, you are less likely to miss or be late on a payment. Your bills are on your mind each payday. With timely, frequent and advance bill payments as your new status quo, you can watch your credit score climb.
Raising Your Credit Score With Additional Payments
Don’t forget you can make additional payments on your loans. If you have an extra $100 or $200 each month or come upon a bonus or other windfall, put that money toward your payments.
Don’t get into the habit of making minimum payments. Pay a little more on your debts when your monthly expenses are lower. Rework your budget so you can apply a little more money toward loans each month. You can also round up payments. Even small increases in payments will help you pay off debts faster, raising your credit score by making you look like a reliable borrower.
Before accelerating or altering your payments, always check your auto or mortgage lender’s policy on penalty fees associated with paying off your loan too early. It’s also best to turn off or cancel any automated bill payments you might have with banks or other lenders. You want to put your payments on manual transmission, leaving you in full control of the road ahead. Take control of your finances and boost your credit score.
This article originally appeared on GOBankingRates.com: This Easy Trick Will Improve Your Credit Score and Avoid Late Payments
This article by Paul Sisolak first appeared on GoBankingRates.com and was distributed by the Personal Finance Syndication Network.