The last time I fell behind on bills, it happened way back in June 2009. In my defense, I was preoccupied: I had been laid off from my staff job at the Chicago Tribune in late April. I’d been there a long time, and was reeling from the loss of steady income and prestige. And that probably led to my missing a Chase credit card payment by just a few days.
Try telling that to the credit bureaus. To this day, that blemish sits on my credit report like a big old pimple on Brad Pitt’s forehead. Forget my previously perfect record; that late check knocked my scores down by 50 points or more. I tried to get the strike reversed, but to no avail. I’m still trying to recover that lost ground.
Learn from me, then: It’s never good when you fall behind on debt payments. Aside from a knock to your credit score, you may face other consequences such as jacked-up interest charges, late fees — even repossession. So what can you do if you’ve missed a payment or two, or suspect that you will in the month ahead?
First of all, if you’re behind on bills, stay calm
Anxiety and panic — especially if you obsess about the fallout — won’t get you anywhere. Put all of your energy into solving the problem and building up defenses so that it won’t happen again. And for the sake of financial sanity, don’t bury your head in the sand. Ignorance definitely isn’t bliss here, even if you’re scared to confront the reality.
Now here’s what you can do proactively and preemptively:
Call the biller and ask for an extension
There’s no way to predict which concerns — bank loans, credit cards, car creditors, or mortgage companies — will extend this courtesy. You will want to point out, though, that you’ve never missed a payment before, or that you’re dealing with really extenuating circumstances. If the representative says they can’t help, ask to speak with the department manager. They often have the autonomous authority that the phone jockeys lack. Particularly with a mortgage, be careful. Foreclosure isn’t fun.
If you miss a payment, ask for a one-time exemption
With credit cards, a missed payment can result in the double whammy of a late fee ($35 or more is not uncommon) and a shocking raise in interest rates (from single digits to 19.99 percent APR or higher). The key here is your account history: if you’ve never missed a payment before, many credit card companies or creditors will extend you a one-time courtesy of removing the fee and interest rate hike. Stack the odds in your favor by:
- calling as soon as you notice the error
- offering to pay the outstanding payment right then and there by phone
Get your credit report
Perhaps in a transition to full-time work or relocation your habit of on-time credit payments got lost in the shuffle. Now is the time to look at your credit reports and see how those late payments affected your FICO scores. FICO scores of 700 or higher are considered good (850 is the maximum).
It’s rare that your creditors will reverse late payment information on those reports, but you can try — especially if, say, your late payment was the result of a post office snafu.
The Federal Trade Commission gives you great advice on how to dispute credit report information, and even supplies the template of a dispute letter you can send off to the three bureaus. Send your letter via certified mail “return receipt requested” so you can document what the credit reporting company received.
As both preemptive and patch-up measures, consider the following:
Automate all of your payments online
The best part of this strategy is that you’ll never miss a payment, unless the creditor switches your due date — which sometimes happens. (In that event, call the creditor to have a one-time courtesy applied). To be on the safe side, always schedule payments a week before they are due.
Most major credit cards offer automatic payment services through their websites. Create an account, link it to your bank, and set up recurring payments. This takes just a few minutes and can help guarantee that all your payments are made on time.
Check your online credit card account often, and make sure the payments are going through. Also, your bank account will always need enough balance to cover these automatic payments, so keep an eye on that as well.
Tether a credit line to your bill payment account
My Citibank account has a $4,000 credit line linked to it and it never gets used unless my account is too low to cover monthly debt payments. The line automatically kicks in without missing the payment, though it does accrue a daily interest charge. I think it’s a great tradeoff — this feature kept my FICO scores solid during a year-plus of financial turbulence.
Call up creditors to make alternative arrangements
You’ll have a better chance if you do this before trouble hits, but it’s always possible to negotiate new terms with, say, lower monthly payments. Just be aware that the lower your payment, the less principal you’ll pay off.
If you feel yourself on the edge of a financial cliff with the Valley of Late Payments below, know that you’re not alone. Depending on your circumstances, the non-profit Money Management International can help you negotiate new terms and reorganize your financial priorities. Note: MMI can be selective in terms of whom they take on. You have to be in pretty bad financial shape.
Of the five factors that determine your credit rating, payment history is the highest, at 35 percent. There’s no shame in missing a payment; it’s no worse than getting into a minor fender bender or missing a deadline at work. Be kind to yourself above all and remember: it’s not perfection, but correction, that matters most.
Keep in mind that credit card companies and mortgage lenders will often work with you, especially if your missed payment is the first small blemish on an otherwise clean record. Try not to fall behind on bills, but if you do, call your creditors and play an active role in fixing the problem — it’s your best chance at reversing any damage and keeping your credit record healthy.