Being able to build and maintain a good credit score is one of the most important things you could ever do for your personal financial well-being. Having a good standing with your credit may allow you to take out a mortgage to buy a house, borrow money to buy a car, as well as take out sizable loans for all kinds of other things. There are all kinds of ways to build your credit – the most notable of these being paying all your bills on time every time.
Why Paying Your Bills on Time is Great For Building Credit
Paying your bills on time means several nice benefits for you. For one thing, you will get to keep using the services that you have contracted for another month. For another thing, when you pay certain bills on time it will show that you are able to repay what you owe in a timely manner.
Paying your bills on time may help you improve your credit score. A higher credit score may in turn help you look better to lenders.
Kinds of Bills That Will Help Build Your Credit
There are quite a few different bills that will help you to build your credit, so long as you manage to pay them on time every time. Doing so could improve your financial health significantly and lead to better opportunities down the road.
- Credit card
- Monthly mortgage
- Auto loan
- Student loan payment
The reason these bills help you to build your credit is that you had to borrow money from these companies. By paying back what you owe them on time, it shows that you are good for any money that is lent to you and that you repay in a timely fashion. Punctuality will make you look better to any other creditors or lenders, and will make them more willing to lend larger amounts at better interest rates in the future.
Kinds of Bills That Will NOT Help Build Your Credit
While the aforementioned bills help you improve your credit score, there are other kinds of commonly issued bills that will have no impact, positively or negatively, on your credit score. Some of these bills include, but are certainly not limited to:
- Utility bills
- Rental payments
- Insurance bills
- Cable bills
- Cell phone payments
The reason that these kinds of bills do not have any impact on your credit’s standing is that you did not borrow any money from these companies to have the bills in the first place. Companies you did business with charge you for the services or goods they have provided you with so that they may profit.
Change in the Game Regarding Rent
That said, the game is changing a little bit when it comes to rental payments. Though many still will not accept them, some credit bureaus are starting to accept rental payment histories in their credit reports so that consumers have yet another way to build up their credit scores.
Your monthly apartment rent that you already pay could help you look like a better borrower to anyone you would want to take out a loan or credit from. Sounds like a pretty big win/win.
Do Not Neglect Any of Your Bills
Just because a bill does not have any direct impact on your credit, does not mean that you should ignore or put off paying a bill when it needs to be paid.
Ignoring any bill could send you into debt collection. When this happens, a severely negative impact on your credit score could occur. When you go 30 days without making a loan payment, or up to 180 for a credit card payment, your balance may then be turned over to a collection agency.
Accounts that are in collections are specially noted on your credit report and will then have a huge negative impact on your credit score. It will end up taking a lot of time and effort to raise your score back up after all of that.