Insert your debit card, get cash and skip the fee. Here’s how.
Mobile payment apps and the plastic in your wallet have made it pretty easy to buy what you need without cash. But what about the times when you need to tip your manicurist (cash only, please) or chip in for your boss’ birthday gift with actual dollar bills?
Given that a 2020 Bankrate survey found the cost to withdraw from an out-of-network ATM averages $4.64, there is financial value in answering this simple question: What ATMs can I use my debit card at without paying fees?
Since the cost of out-of-network ATM transactions may add up more quickly than you think, follow these four steps to get cash without paying an ATM fee:
1. Understand how ATM fees work
Before you determine where to find no-fee ATMs, you need to learn how ATM fees work. You may have noticed that each time you withdraw cash from an ATM that’s not affiliated with your bank, you see a fee. And it might not be just one fee—there could be two separate ones.
“When you use unaffiliated ATMs, your bank (or credit union) will pay a small fee to the company that owns the ATM for the transaction. This charge will be passed through to you as a non-bank ATM fee,” says Steven Millstein, certified financial planner and founder of the personal finance blog Credit Zeal. According to the Bankrate survey, the average fee charged by banks to use an out-of-network ATM was $1.56 in 2020.
“You may then be charged a fee directly from the unaffiliated ATM itself,” Millstein adds. Per Bankrate, the average ATM surcharge—the fee levied by the other bank—was $3.08 in 2020.
2. Get acquainted with your bank’s ATM network
If you’re wondering what ATMs you can use your debit card at without paying fees, the answer is those that are in your bank’s ATM network.
“Know where your local ATMs are and make a habit to use them when you are going out and know you will need cash,” Millstein says. “The ATMs that belong to your financial institution (bank or credit union) will generally offer free withdrawals.”
If you want to get cash without paying an ATM fee, leverage your bank’s ATM locator. Sarah Hollenbeck, a personal finance and credit expert for Credit Cards Explained, says that since so many banks allow you to search their ATM networks online, or within their mobile banking apps, figuring out where to find no-fee ATMs is a painless task. “This is the best way to make sure the ATM you’re standing in front of is in network,” Hollenbeck says. “I, personally, haven’t paid an ATM fee in the U.S. in years.”
Determining where to find no-fee ATMs may be simpler than you think, Millstein explains, because many major banks now have partnerships with retailers and gas stations to offer no-fee access to a wide network of ATMs. This can allow you to get cash without paying an ATM fee, regardless of whether your bank has a branch in the area. Discover, for example, has more than 60,000 no-fee ATMs in its partner network, which spans retailers, other banks and local businesses. You can find the ATM nearest you at any time using Discover’s online ATM locator or through its app.
Don’t have access to Wi-Fi or your bank’s app and need to get cash without paying an ATM fee? “As a fail-safe, the ATM itself will disclose any fees via a screen before you complete the transaction (based on the card you are using). You can then choose to remove your card or opt in to receive the fee,” Hollenbeck says.
To ensure you can get cash without paying an ATM fee in a pinch, you may also want to learn the location of the in-network ATMs closest to your home, office and the other places you frequent.
3. Request cash when you check out
If you need cash and can’t figure out where to find no-fee ATMs, consider using your debit card to make a small purchase (like a pack of gum or bottle of water) at a grocery or convenience store. “Most of the large retailers will offer you cash back free of charge along with a purchase,” Millstein says.
You can also use your debit card to request cash back when you run your weekly errands, or make other planned purchases, so you never find yourself without cash on hand and can avoid ATM fees.
“Thanks to many stores being flexible in accepting cards for even small-dollar transactions, I haven’t found myself in need of cash in a very long time,” Hollenbeck says.
If you leverage cash back from retailers as a way to get cash without paying an ATM fee, remember to track this expense in your budget. Simply tack on the amount you’ll be getting in cash back to your weekly grocery or errands budget so it’s accounted for, and then save that money for those cash-only situations.
4. Plan your cash needs in advance
If your child regularly needs cash for activities and school events or your frugal foodie co-workers like to eat at the cash-only food truck every Friday, plan how much cash you need to carry in your wallet ahead of time so you’re not frantically trying to figure out how to get cash without paying an ATM fee.
“I always keep my wallet topped up with cash so I know it’s there when I need it,” Millstein says.
Planning how much cash you need in advance will also help you avoid carrying around excess cash, which is on the list of things you should never carry in your wallet in case it is ever lost or stolen.
Writing checks may seem like an outdated way to pay for things, but plenty of people still use them.
More than 14.5 billion checks, totaling $25.8 trillion, were written in 2018, according to the Federal Reserve’s latest payments study. And while that number has decreased by about 7% every year since 2015, debit and credit card payments aren’t as ubiquitous as many of us think.
In an era of identity theft and bank fraud, American’s long-standing relationship with their checkbooks begs the question: How safe is this 20th-century payment method?
After all, when you pay by check, you’re handing a slip of paper with your bank account number, and other personal details like your name and address, to another person (often a complete stranger).
Indeed, experts say, paying by debit or credit card tends to be the safer bet. Checks can be forged, and identity thieves could lift your personal and banking details straight from a paper check.
Even payment apps like Venmo and Zelle have a leg up over paper checks these days.
Derik Farrar, head of personal deposits at Truist Bank, says that in 2020, 83% more Truist customers used Zelle—which the bank taps for peer to peer transfers—than they did in 2019. (As COVID-19 spread through the country, he says, people avoided in-person banking by swapping checks for virtual payments).
Here’s what you need to know about writing a check in 2021 — and how to minimize your risk.
How safe are paper checks?
Banks use security measures like watermarks and gradient backgrounds to prevent checks from being reproduced by fraudsters, and to help financial institutions and businesses validate them easily. In 2018, measures like these prevented 90% of attempted fraud, according to the American Bankers Association. Still, check fraud—which includes forgery, theft and counterfeiting—accounted for $1.3 billion that same year.
“A paper check may be handled and seen several times before ultimately being deposited or cashed,” says Tara Alderete, director of enterprise learning at Money Management International, a nonprofit financial counseling and education organization. “And because paper checks include visible personal and financial information—your name, and bank routing and account numbers at minimum—they could put you at increased risk for fraud.”
The risk goes up if you don’t specify a recipient on the check — if you write a check to “cash,” anyone who gets a hold of it could cash it. If you need cash, it’s safer to use your debit card at an ATM or visit your bank and write a check out to yourself while you’re there, Alderete says.
People of all ages still write paper checks, but older Americans are more likely to do so. Since elderly people are more likely to be the targets of financial fraud than the general population, check-writing can compound their risk.
How to protect your details — and your money
There are several steps you can take to safeguard your information and reduce your risk of fraud.
For one, fill out the “payee” line and full, current date on every check you write. And always use ink.
It’s wise to limit the information pre-printed on your check to just your name and address, Farrar says. Avoid including your birth date, telephone or driver’s license number. If a merchant requires these details, you can always write them in.
Keep your checks in a safe place — not in your purse or briefcase, which can be lost or stolen.
Monitor your bank account activity regularly, too. Balancing your checkbook often isn’t just a good financial habit. By keeping an eye on your finances, you also reduce your risk of fraud, Alderete says.
Don’t chuck your checkbook (yet)
Even if you prefer paying electronically, you probably shouldn’t write off checks altogether.
Some small businesses still don’t accept debit or credit cards, and if they do, they might charge a fee for it. (Businesses are charged a processing fee for electronic transactions, so not accepting them helps keep costs down, Alderete says).
Sometimes, paying by check is just easier — many people like to have their checkbooks handy to gift people money, or to pay for services like dog walking or yard work.
Checks also offer a paper trail, so they’re usually the go-to payment for big purchases, like a down payment on a home or an IRS tax bill. And that’s a good thing: If a problem comes up, you’ll have a copy of the deposited check, and a track record of when the payment was made, received and applied.
No payment method is 100% fraud-proof.
Still, Farrar says, “With proper handling, checks are an extremely safe method of banking, as they have been for hundreds of years.”
If you need to move money from one financial institution to another, you might be considering a wire transfer. Wire transfers can be a good option because they’re a fast and safe way to send money.
However, this can be an expensive option, so most banks charge hefty fees for this service. This article will explain how a wire transfer works, what the average bank charges, and how you can lower or even eliminate fees altogether.
What is a wire transfer, and how does it work?
A wire transfer is a way to move money electronically to another person or financial institution. It’s a safe and reliable way to move money since no cash is handled. And since wires are quick, it’s a good option when you need to send money fast.
To send a wire transfer, you need the recipient’s name, address, banking information, and the amount you want to wire. Some banks will allow you to process a wire transfer online, while others make you come in and fill out paperwork.
Once you’ve filled out this information, the bank will transfer the money, and you’ll be good to go. Wire transfers typically happen within a day or two, depending on the bank or institution you use.
Wire Transfer Fees of 10 Financial Institutions
Wire transfer fees typically range from $0 to $30, depending on the bank or credit union. Listed below is a chart of some of the biggest banks’ wire transfer fees.
Bank of America
$35 in foreign currency $45 in U.S. dollars
Capital One 360
$5 in foreign currency $40 in U.S. dollars
3% of foreign currency amount $0 if sent in U.S. dollars
$35 in foreign currency $45 in U.S. dollars
How Much Are Wire Transfer Fees?
Several different factors will determine how much a wire transfer costs. The most significant factor will be the bank or institution you’re conducting the wire transfer through.
For instance, nonbank providers tend to charge a lower fee to process a wire transfer. Though if you are a regular customer at a certain bank, they may give you a break on the fees.
The fees are also determined by whether you’re doing a domestic or international wire transfer. As you can see in the chart above, international wire transfers tend to be more expensive.
That’s because domestic wire transfers can be processed through one payment system instead of multiple banking systems. And incoming wire transfers also tend to be cheaper than outgoing wire transfers.
International Wire Transfers
Banks and money transfer providers charge other financial institutions a midmarket rate for trading large amounts of foreign currency. However, when they convert the money for customers, they charge a higher markup. The markup is determined by the percentage of the amount being sent. You can check the midmarket rate online to see how much more your bank is charging you than the rate it pays.
If your bank doesn’t convert the money for international wire transfers, the foreign bank will do it and generally tack on their own fees. The best way to avoid these fees is by using a nonbank option for international wires.
ACH vs. Wire Transfers
If you’re looking for alternatives to wire transfers, you can also consider an ACH transfer. ACH is a safe way to transfer money from one bank account to another.
The advantage of doing an ACH transfer is that it’s usually free to complete. However, ACH transfers are less convenient than wire transfers. Wires can be completed in as little as a few hours, whereas ACH transfers typically take two to three days.
Wire transfers are a much more secure way to receive money, but it is riskier to send them. Once you’ve processed a wire transfer, it cannot be undone, even if you made a mistake. On the other hand, ACH payments can be reversed in cases of error or fraud.
Other Alternatives to Wire Transfers
People often choose a bank wire transfer because it’s a safe way to move large amounts of money electronically. But if you’re conducting a smaller transaction, there are more affordable alternatives you can consider.
For instance, your bank’s online bill pay is a great way to do a money transfer to another person safely. You can also use peer-to-peer payment options like Zelle or the Cash app. There are no fees to use the app, and the money is transferred instantly.
You can also send money through PayPal, Square Cash, or Venmo. And even Facebook Messenger provides an option for transferring money to other people.
How to Avoid Wire Transfer Fees
If you’re interested in sending money through a wire transfer, here are a few ways you can avoid or cut down on the fees.
1. Consider nonbanking providers
Big banks like Bank of America, Chase, and Wells Frago tend to charge the highest fees for wire transfers, so you can save money by choosing a nonbanking provider. Western Union, TransferWise, and MoneyGram are all good alternatives.
2. Wire the money in a foreign currency
Some banks will give you the option to conduct wires in a foreign currency. You don’t have to have the foreign currency on hand since the bank will do the conversion for you. This can be a good way to cut down on or even eliminate the wire transfer fee.
3. Schedule recurring wire transfers
You may be able to earn a discount by scheduling recurring wire transfers. However, if you anticipate needing a money transfer on a recurring basis, your bank can probably offer you cheaper options.
4. Do it yourself instead of having the bank initiate it
Many banks will lower the fee if you do the wire transfer yourself instead of having the bank initiate it. For instance, you could earn a discount by doing a wire transfer online instead of visiting a branch and having a teller do it for you.
By doing the wire transfer yourself, you could cut down on the fees by $10. Just make sure you feel confident about your ability to initiate a wire transfer on your own. These transactions cannot be canceled, so you don’t want to make a mistake.
5. Choose a bank that offers free wire transfers
Some banks will waive the wire transfer fees for their customers. These discounts are usually given as a perk for opening more exclusive accounts with that bank.
Wire transfers are a secure way to send money electronically to another person or financial institution. They are generally considered the safest way to transfer money, but they can come with hefty fees.
You’ll need to decide for yourself whether these fees are worth it. Here are a few things to keep in mind before sending a wire transfer:
Check with your bank to see what kinds of fees they charge. If they charge very high fees, you can switch to a bank that charges more reasonable rates.
If you want to substantially cut down on wire transfer fees, you can look into nonbanking options like Western Union or TransferWise.
If you only need to transfer smaller amounts of money, consider peer-to-peer payment apps like Zelle or the Cash app. These transfers happen immediately and won’t cost you any fees.
A debit card adds both security and convenience to managing your money. But how exactly can you get one? We’ll explain all of the details, from how to take advantage of beneficial features to what kind of fees you can expect to pay.
You’ll even learn how to monitor your debit card and keep your finances as secure as possible. Ready to get started?
What is a debit card?
Simply stated, a debit card, sometimes referred to as a bank card, check card, or ATM card, is a method of transferring money from point A to point B.
It is a method of payment used instead of checks or cash when making a purchase or payment through credit card payment networks such as Visa or Mastercard.
While a debit card looks nearly identical to a credit card, it acts more like a check when making purchases. Instead of charging a debt, the card instead draws money from your checking account.
How does a debit card work?
Unlike a check, which can take days to be deposited and then transferred from one bank to another, a debit card works instantaneously. Debit cards may also be used by mobile payment apps such as Square, PayPal Here, or other credit card readers.
Unlike the typical POS equipment found in larger retailers, these mobile payment devices are typically used by smaller businesses. They are attached to cell phones or other mobile device’s through their headphone jack.
Other services like Apple Pay are trying to eliminate the need for a card at all, allowing you to just tap your phone to initiate the transaction.
While debit cards are primarily designed to eliminate the need for you to carry cash, they were initially designed for you to be able to withdraw cash from checking accounts easily. Before the invention of automated teller machines (ATMs), customers had to wait until a bank opened before removing cash from their accounts.
With the advent of the ATM, customers were no longer beholden to bank hours. With the swipe of a card and a four-digit code, customers could now withdraw and deposit money at any time of day or night.
Debit Cards vs. Credit Cards
No application: A debit card is typically given with most checking or savings accounts. However, a credit card requires that you fill out a lengthy application and a credit check.
Purchases and withdrawals: When you use a debit card to make a purchase, you’re purchasing with your own money. When you use it to withdraw cash, you’re taking out your own money. With a credit card, when you make a purchase, you’re essentially borrowing money from the bank. And when you use it at an ATM, you’re taking out a cash advance from the bank.
No monthly bills: With a debit card, there are no monthly bills as the money is coming out of your checking account. With credit cards, you will receive a bill that you must make a minimum monthly payment on.
Spending limits: Debit cards typically don’t have a spending limit. You’re only limited by how much you have in your account. With credit cards, the credit card issuer generally sets a credit limit.
No effect on your credit: Using a debit card has no effect on your credit. You can neither build nor hurt your credit with it. With credit cards, your monthly payment history, in most cases will be reported to the credit bureaus allowing you to build your credit history if you use the card responsibly.
What fees are associated with debit cards?
While most debit cards are free from your bank when you open a checking account, there are fees associated with your card. The main fee you’ll likely encounter is the ATM fee.
If you are using an ATM outside of your bank’s network you’ll likely be charged up to $3 per transaction to withdraw money from their ATM.
These can add up quickly, so it’s a good idea to use a bank with a large enough ATM network to serve your needs. The fees are static, so whether you withdraw $20 or $200, the amount charged will be the same.
You may be charged a small fee if you use your debit card with a 4-digit personal identification number (PIN), instead of your signature for transactions.
Replacement Card Fees
Your bank may also charge you a replacement fee if your card is lost or stolen. It’s a one time fee to replace your card and is usually only charged in these instances. If your card has expired, your bank typically issues a new card and will likely not charge you a replacement fee.
Overdraft or Insufficient Fund Fees
These fees are charged by your bank if you have spent more money than is actually in your bank account. If you overdraw your account, the bank may honor the payment instead of denying the transaction.
If you have overdraft protection the bank will automatically move money from another account, such as a savings account, into your checking to cover the costs.
If you do not have overdraft protection and the bank honors the payment, you’ll have a negative balance, and your bank will charge you a fee. The amount is usually between $30 to $35 and will be owed to the bank in addition to the negative balance due to a purchase.
Are debit cards secure to use?
Debit card and credit card fraud is a big business, with credit card companies and merchants losing almost $22 billion in 2015. That number is up almost $5 billion dollars from the previous year.
If you consider the total amount of loss back in 2000 was just $3 billion, it’s obvious that banks need to do something to stem this tide of fraudulent charges.
Credit and debit card companies started introducing EMV chips to their cards in 2015 to help prevent as much fraud as possible.
EMV stands for EuroPay, MasterCard, and Visa, who are the three companies that developed the technology. It’s now managed by EMVCo, a consortium including American Express, China Union Pay, Discover, as well as the founding companies.
You’ve probably noticed that at most retailers you’re now asked to insert your card into a reader instead of swiping your debit or credit card. This is a level of security used to protect the bank, the retailer, and you from fraud associated with spoofed cards and other forms of debit and credit card fraud.
What if your debit card is lost or stolen?
Banks offer certain protections against the misuse of stolen debit cards, but it’s crucial that you act quickly. Call your bank to have your card deactivated or frozen as soon as you realize it’s missing.
The longer you wait, the more you’re personally liable for charges incurred on your debit card. If you report a card missing or stolen before any fraud occurs, you are not responsible for any amount charged to your account.
If you report it within two business days of it being stolen and misused, you’re only held liable for up to $50 in charges. Report it within 60 days and that number jumps to $500. If you wait 60 days or more to report your card missing or stolen, you are legally liable for all deductions from your checking account.
How do you make online purchases with a debit card?
Purchases using your debit card aren’t just limited to a physical storefront. Making debit card purchases online can save you time and money eliminating long lines and other headaches.
If you’re purchasing an item from a company that does not have a physical presence in your state, it’s likely that you don’t have to pay sales tax. It’s also easy to search for who has the item in inventory, who has the best price, and the fastest shipping.
But while purchasing items online can make shopping much easier, it can also make fraud much easier as well. Luckily, banks take precautions to ensure your safety here, too.
Because the retailer cannot physically see the card credit, card processors add an extra layer of protection with a CVV code. In addition to asking for your card number and expiration date, online sales forms also request your CVV code.
With a MasterCard or Visa, this three-digit code can be found on the back of your debit card. In the case of American Express, it is a four-digit code found on the front of the card. The additional request of this code helps establish your identity and reduce fraud especially when a card is not physically present.
Setting Up Automatic Payments with a Debit Card
With a recurring payment, sometimes called autopay, the cardholder authorizes periodic charges to their debit card which are taken from the cardholder’s checking account. This recurring payment can be variable, such as monthly payments to utility companies for gas or electric.
They can also be static, like a monthly Netflix or Spotify subscription. Recurring payments can be a simple way to ensure you pay your bills on time each month. They help you avoid late fees if you’re forgetful and free up time for those with a lot on their plate.
That being said, it’s important to keep track of these payments for a few reasons. Staying on top of recurring payments helps you keep track of how much money you have in your account, especially if they are variable like electric bills.
Canceling Automatic Payments
You may find services that you’re paying for but that you no longer use. Autopay is becoming more and more common, especially with streaming video and audio services. Netflix, Amazon Prime, HBO Now, Hulu, Spotify, Pandora, and Deezer are just a few examples of streaming services that you may subscribe to.
With all of these options, it’s possible that you’ve even forgotten you signed up for some and are paying for a service that you no longer use.
If this is the case, it’s a good idea to call the vendor and ask them to cancel your subscription. If you haven’t been using the service for some time, they may even give you a refund for some of those charges. After all, it never hurts to ask.
If you have requested a vendor to cease charging you and they refuse, you can then go to your bank and tell them to reject the charges. You have 60 days to dispute it with your bank, so it’s best to stay on top of your statements and keep an eye out for any anomalies.
What is a prepaid debit card?
While most debit cards are connected to checking accounts, there is also another kind called a prepaid debit card. Typically issued by Visa or Mastercard, these cards are sometimes referred to as gift cards. They can be purchased at retailers for specific amounts of money and used just like a credit or debit card.
Prepaid debit cards can have some significant downsides. In most cases, a prepaid card can be used by anyone who possesses it. If you lose your card or it is stolen, there is little you can do to recoup your money.
Additionally, there are larger fees such as ATM fees and monthly fees. If you are going to use one, it’s a good idea to shop around and read the fine print. There are a lot of options out there with a wide range of terms and conditions.
Using a debit card instead of cash or checks can be convenient and safe compared to other methods. Still, it’s a good idea to stay watchful. Fraud associated with credit and debit cards is at an all-time high. Banks and financial institutions are fighting back, but ultimately it’s up to you to use your cards wisely.
The future is here, and while the flying cars that were promised haven’t arrived yet, the finance world is speeding full-force into the future with everything from wireless payment apps on our phones to entirely decentralized finance systems.
Decentralized finance, known as DeFi for short, is a fundamentally new financial system that moves monetary control away from centralized banks and towards public blockchains.
Put more simply, DeFi has the potential to change the underlying mechanics of financing and banking, as well as how people access financial services, by using the internet and smart devices instead of going through a centralized bank.
What Is Centralized Finance?
In order to understand DeFi, it is helpful to understand how the traditional financial system works. In general, the current US financial system is largely controlled by central authorities.
For example, some aspects of the financial system are controlled by the Federal Reserve (sometimes referred to as “The Fed”). The Federal Reserve, which serves as the nation’s central bank, was created in 1913 after several financial panics caused people to withdraw their money from decentralized banks. Mass withdrawals of money caused banks to fail and incited more financial crises.
cash management accounts, financial management apps, and ATM access, each of those things actually requires turning over that money to an institution and trusting that intermediary to manage it. The underlying goal of DeFi is to give actual control by using blockchain technology and open source coding to do the same types of transactions that currently take place largely through financial institutions.
Blockchain technology is a term commonly used in relation to cryptocurrency. At its most basic, blockchain can be thought of as a secure logbook that records transactions but is not controlled by a centralized institution. Rather, accountability in the blockchain is ensured because the “chain” is not editable and is stored in many places instead of in one centralized institution.
If this sounds familiar, it may be because blockchain serves as the “building blocks” of cryptocurrency like bitcoin. To understand DeFi, however, it is only important to understand that blockchain is secure, automatically generated, and able to be examined and tracked, just like a physical ledger. And unlike banks, blockchain is stored on users’ computers, which means that it’s not controlled by a central authority like the Fed.
In order for cryptocurrency like bitcoin to exist, it needs a secure ledger to track it—that’s blockchain. So is DeFi just a synonym for bitcoin and other cryptocurrencies? Not exactly. While cryptocurrencies are decentralized when it comes to issuance, transfer, and storage, they are still centralized when it comes to access and management.
Specifically, you still need to access cryptocurrencies through centralized exchanges, and many cryptocurrency projects are managed through companies which functionally act as that intermediary that DeFi seeks to eliminate. Some cryptocurrencies even tie their worth to physical currencies like the US dollar to attempt to provide stability.
DeFi takes crypto to the next level by attempting to give the benefits of cryptocurrency without the need to tie access and management through centralized access points or companies, which can obscure the open nature of these transfers and potentially lead to abuse of the system.
DeFi is a network of open-source apps based on blockchain that allow users to engage in financial acts in an entirely peer-created, peer-reviewed, open-source world, which is all based on the security of blockchain.
Because everything within the DeFi crypto universe is open source, users theoretically have the control to engage in a wide variety of financial transactions with the assurance provided by the underlying blockchain technology.
How Can Decentralized Finance Be Used?
There are many ways that DeFi crypto is and could be used. One popular way that it is being used currently is with open lending protocols. While the name sounds complicated, open lending protocols essentially seek to eliminate the centralized middleman between lenders and borrowers.
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If you’re serious about your credit score, you need to pay your bills on time. One late payment can have a devastating effect on your credit score. Here’s what you need to know about late payments and your credit score, and what you can do to protect yourself.
How Late Payments Affect Credit Scores
Your payment history is the biggest factor in determining your credit score, so it’s imperative that you pay your bills on time whenever possible. If you do make a late payment, there are three factors that determine how much it will affect your credit score.
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Your credit score and credit history
How long ago the late payment was
How severe the late payment was
According to FICO’s credit damage data, one recent late payment can cause as much as a 180-point drop on a FICO score,depending on your credit history and the severity of the late payment.
Your Credit History and Late Payments
The impact of a missed payment on your credit score varies significantly depending on your circumstances. The better your credit, the more you may feel the sting of a late payment. In fact, that 180-point drop mentioned earlier is most likely to happen to an individual with excellent credit who is 90 days late on a payment. Because individuals with good and excellent credit don’t have a history of risky behavior, one mistake sends up a red flag that can drop their score more dramatically.
Individuals with a shorter credit history will likely see a dramatic decrease in their score after a late payment as well. Because there is less information available on your financial behavior, a late payment is a bad sign. On the other hand, individuals with lower credit scores already have a history of risky behavior, so one more late payment won’t drop their score as much.
How Time Affects Credit
The more recent a late payment is, the more severely it will affect your credit score. A missed payment remains on your credit report for up to seven years from the date it occurred. The overall impact of the late payment diminishes over time and goes away completely when the missed payment ages off your report.
Your score won’t necessarily jump 100 points simply because a late payment ages off or is removed. Even though a late payment might have originally dropped your score by a good number, the impact of that late payment changes over time. How much your score goes up when a late payment is removed depends on a variety of factors, so you’ll want to continue practicing smart financial habits like making payments on time and keeping your credit utilization low.
How Severity Affects Credit
If you missed your credit card payment by one day, you probably don’t need to sweat it. In most cases, lenders and creditors have grace periods that can range from a few days to up to 10 days. Grace periods are meant to account for minor mistakes and lag in mailing or posting payments. If your payment arrives within that time period, the lender may not count it as late.
Most lenders don’t report missed payments until your account is 30 days past due. After 90 days, the effect on your credit score will be even more drastic.
Make sure to read the fine print on your account agreement, though, to know if you have a grace period. And avoid falling into the habit of relying on the grace period. If you’re used to paying your bill five days after the actual due date, you could miss the grace period if you experience a personal emergency. Also keep in mind that interest and fees may still apply during the grace period, even if your payment isn’t reported as late to the credit bureaus.
How to Protect Your Credit History Against Late Payment Impact
Payment history is a huge part of your credit score. It accounts for around 35% of your score—over a third. Take action to ensure late payments aren’t impacting your score when they don’t need to. Here are three tips for doing so.
1. Check Your Credit Score and Report Regularly
Check your credit reports frequently to ensure late payments aren’t being reported inaccurately. A simple clerical error is enough to cause your score to go down. If you see inaccurate information on your credit reports, you can and should challenge it and ask for verification.
You can get a free credit report annually from each of the three credit bureaus. Due to the COVID-19 crisis, you can get your free credit report once a week through April 2021. When you request your credit report from AnnualCreditReport.com or the individual credit bureaus, you won’t also see your credit score. If you want to see both at the same time, consider signing up for ExtraCredit. You’ll see 28 of your FICO scores from all three credit bureaus, plus your credit reports from each.
2. Use Tools to Help You Make Timely Payments
Avoid late payments by using resources that ensure you make payments on time each month.
Sign up for auto payments. Your lender may offer this option, letting you enter a credit or debit card or checking account and taking payments out of that account each month. The benefit is that you can set and forget your payments, never worrying that they’re late. The disadvantage is that you have less flexibility in when you pay each month, and you have to ensure you keep a balance in your account to cover the charges.
Use apps or phone alarms. Remind yourself to make payments with app notifications that let you know the payment date is arriving soon. Many credit card companies and other lenders offer options for receiving such notifications directly from them.
Make smaller, more frequent payments. If you’re struggling to save enough to cover a large bill each month, pay a portion of what’s owed every week. This can help simplify your budget, though you do need to ensure you’re not being charged convenience fees or other amounts every time you make a payment.
3. Ask for One-Time Late Payments to Be Forgiven
Life happens, and creditors are aware of this. So if you do find yourself making a one-off late payment, contact your creditor.
Apologize for the late payment, let them know it’s not a normal occurrence for you and point to your previously pristine payment history. Ask the creditor to waive late fees and interest charges as a courtesy and not report the late payment to the credit bureaus. It’s a tool you must use sparingly, but creditors may to oblige if you really do normally pay on time.
Your Credit Score Will Thank You
Making all your bill payments on time is one of the best ways to keep your credit score happy and healthy. Keep track of how you’re doing by signing up for ExtraCredit.