Every week the bills arrive like clockwork in your mailbox or inbox. There is no break in the rhythm, regardless of other events happening in your life. As long as the income arrives in sequence with the bills, you are able to make everything work. Then, as life does, something comes up and you are left scrambling with the decision of what to pay first and what must wait. The unexpected event could be anything from a reduction in work hours to higher expenses not covered by your emergency fund. Either way, there is not enough money to get everything paid on time.
The first factor in deciding which bill may be one in which you may choose to wait to pay until the next pay day, is looking at the type of account it is. Each has different grace periods and late fees to consider when deciding to pay a bill late.
Account Type, Grace periods, and Late Fees
Real Estate Loans like mortgages, second mortgages, and home equity loans offer a 15-day grace period before a late fee is charged. This includes your primary home, second homes, investment real estate, and land. Late payments are a percentage of the payment due and are generally small compared to other accounts. A “30 day late” will be reported to the credit bureaus, but will not immediately result in the loss of your home unless the account gets further behind. Catching up a large mortgage payment can be a challenge and with your home on the line, this payment should not be put off very long.
Personal Property Loans such as vehicles, boats, and other personal property will typically grant a 5-day window for payments to be considered on time. Late payments vary between lenders and your consumer risk. Vehicle loans can be low interest for those with excellent credit to subprime loans offered to those with poor or no credit. This variance is also found with the late payment structure and how quickly a company will seek to repossess the asset due to a delinquency. You have the right to catch up the payments until the property is sold, although the storage and repo costs can become cost prohibitive very quickly.
Insurance companies are regulated by the state and organizations which oversee the industry. Typically, you have 15 to 30 days to make a payment before a policy lapse occurs. Once this period of time passes, reinstating the policy can be expensive and may require a new policy and requalification to continue coverage. No late fees are normally charged for payments made within the grace period.
Service providers like cell phone, internet and satellite companies offer generous grace periods of 30 to 60 days before disconnection. Calling to make payment arrangements may extend the disconnection date beyond this time. Late fees usually occur around 15 days late and will cost you a few dollars. Once the service has been cut off, the account must be paid in full along with late fees and reconnection fees.
Utilities such as electric, water, and gas charge late fees around 30 days. Utilities are regulated by the state or municipality and offer generous grace periods of up to 60 days before disconnection. Making payment arrangements can extend that even further if needed. It may also be possible to get a set payment based on the prior year’s usage, evening out your utility bills. If you are struggling to pay a bill, local services or nonprofits may be able to provide assistance with catching up payments to get you back on track.
Federal Student Loans offer some of the most generous terms as far as late payments and credit reporting. Forbearances and deferments are readily available with little or no paperwork required. They often do not charge late fees or report to the credit bureau for 60 days, though when it is reported, it starts at a ‘60-day’ late. Late fees are small and a percentage of the payment. Calling to discuss your account can lead to fast relief and guidance on both short term and long term options. If making the payment is an ongoing problem, extending the repayment to 20 or 25 years, through an income based program, may lower your payments.
Credit Cards are the strictest of the accounts and do not offer any grace period. One day late and you will find a late charge averaging $35 on your next statement. Most companies are willing to waive the late fee for open accounts that have only had one late payment within a 12-month period of time. More frequent late payments will not only lead to late fees but can also result in penalty interest being charged on existing balances and future purchases.
Credit Bureau Reporting by Lenders
The most common practice is for lenders to report all accounts within a particular category to the credit bureaus on the same day. Meaning all mortgages are reported on one day, credit cards on another. This date will not be the same day as your payment due date. This can result in payments a few days late being reported to the bureau. Fortunately, many lenders do not report accounts as late unless it has passed the 30-day mark giving you a longer grace period for credit bureau reporting.
Insurance, service companies and utilities do not regularly report to the credit bureaus and this information only makes it to your credit file if the account goes into collection. At that point, the negative information will be reported for seven years from the time of default, regardless of payment.
Credit Score Impact
FICO, the primary credit scoring company scores late payments that are 1 to 30 days late as a ’30 days late’. The information they use for their algorithms is based on the information lenders have reported to the credit bureaus.
Negative information on a credit report is costlier than a late fee because of its long term impact. All negative information remains on the report for seven years (10 for a bankruptcy) and can impact everything from the cost of getting a loan, the cost of insurance, to deposit requirements for utilities and service companies. The more recent the late payment, the larger the impact on your credit score.
While it is always best to pay all your bills on time, and when you must prioritize payments as a temporary solution to unexpected shortfalls, knowing which accounts offer more lenience can help minimize fees while still protecting your credit.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial for a FREE financial analysis today. Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don’t have to struggle with high interest credit card debt any longer. Call (855) 250-8329 or get in touch with us by sending a message through our website here contact-us