The holidays shopping bills are already in the mail and for many Americans, the total might be a bit depressing.

But that’s nothing compared to how depressed you’re going to be if you don’t have a plan to deal with your holiday debt. Carrying a load of debt could cause your credit score to suffer.

But nothing will sink your score faster than paying bills late.

While some consumers will pay off their December credit card bills in full, more than half will spend months paying off the $1,500 in presents and holiday cheer they charged. But what many consumers don’t understand is how and when they pay those bills affects what kind of credit, insurance and jobs they’ll be able to get over the next two years.

“If you don’t have a good credit score, you’re paying too much for everything. You’re paying too much for your mortgage, your auto loans, your credit cards, your insurance and probably your apartment as well,” says personal finance columnist Liz Weston (, who is also author of Your Credit Score (Pearson/Prentice Hall, $17.95).

If you pay even one bill late, you’ll be paying for that mistake over and over again. Other credit card companies will use that one late payment as an excuse to jack up your interest rate even if you’ve never paid a single bill late for that particular credit card.

“They’re checking your credit report. They see one 30-day late they can jack you up 10 to 15 percent on your interest rate. One-time penalty will go up 20 to 25 percent. A second late within a 12-month period will put you up around 35 percent, says Todd Mark, spokesman for Consumer Credit Counseling Service of Greater Atlanta (

Penalty interest rates of 25 to nearly 40 percent on top of late fees that are approaching $40 can quickly work against you, adding to your debt and making it much more difficult to pay down that debt.

According to, how timely you pay your bills accounts for 35 percent of your credit score, according to The website is a joint web venture between credit reporting bureau Equifax and Fair Isaacs, the company that invented the credit score.

Account payment information is collected for credit cards, retail accounts, installment loans, finance company accounts, mortgage and home equity loans and lines of credit. Your credit score also looks at whether there are any adverse public records, like bankruptcies, judgments, lawsuits, liens, or wage attachments, and collection items.

Not only does your credit score get hit if you have delinquencies, but the severity of the delinquency is noted as well. So, if you’re 90 days past due on a bill, that’s going to have a worse impact on your credit score than a 30-day late payment.

Finally, your score also takes into account how recently you’ve been past due on your accounts. If you’ve had a late payment in the past 24 months, your credit score will be lower than if you paid one bill late 5 years ago.

Paying on time is the best thing you can do to improve your score, according to David Rubinger, spokesman for Equifax ( But there is more that you can do to pump up your credit score this year, including limiting the amount you charge on your credit card – even if you pay off your card each month.

“I generally tell people don’t use more than 20 to 30 percent of your credit limit. And that shocks a lot of people who are used to running up their credit cards and then paying them off in full every month,” Weston says.

If you use more than 30 percent of your available credit limit, your credit score could drop by as much as 50 points. To creditors, charging to your limit means you’re unable to properly manage your credit.

Credit experts agree that you’re better off charging 20 percent of your maximum credit limit on three different cards than rolling all the debt onto one card and carrying a balance that is 70 percent of your available credit limit.

But watch out for credit cards like Capital One. The company doesn’t report your available credit limit, just the balance you carry.

To anyone who pulls a copy of your credit report, it’ll look like you’ve maxed out your Capital One card, even if your balance is just a few hundred dollars. That can drop your credit score by as much as 50 points and cause creditors to raise your interest rate on other debt you carry.

According to Cardweb and other industry experts, the only other credit card that followed the practice of not reporting the maximum credit limit was First USA. When the company was bought by BankOne, and that practice was discontinued.

Boosting your credit score means you’ll be able to add another credit card to your wallet. If you own several credit cards, including a Capital One card, the other cards will report your maximum available limit, which will ameliorate the potentially negative effect that Capital One’s reporting policies can have.

But there are other benefits as well.

“If you have good credit, you always have the ability to go to your creditor and ask them for a lower rate,” Mark says.

Published: Jan 7, 2005