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Many people do not seem to recognize that paying bills late can damage an individual's credit rating, according to a national poll by the Direct Deposit and Direct Payment Coalition. The survey found that 35% had been late with major credit card payments, 19% had been late on car loan payments, and 17% were late with payments to gas station or department store accounts. Only about half of those polled, though, identified a negative impact on their credit rating when asked to name "any possible consequences of paying bills late"

"The findings highlight a serious gap in consumer knowledge about an important aspect of personal finance management," maintains Susan L. Robertson, assistant vice president of the Federal Reserve Bank of Atlanta and spokesman for the Coalition. "However, small steps can be taken to improve a bad bill-paying record."

"Payment history generally carries more weight than any other element in determining your credit score, which lenders often rely on when deciding whether to give you a loan or other form of credit," notes Craig Watts, consumer affairs manager at Fair, Isaac, the developer of the mathematical formula utilized to generate the FICO credit scores most frequently used by banks and other lenders. Credit scores are a snapshot of a consumer's credit risk profile and are used by lenders, mortgage banks, and credit card issuers to assess whether a potential customer is likely to pay them back as agreed. About 35% of the FICO score is based on payment history that includes details on both timely and late or missed payments.

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While such scores reflect long-term patterns of credit use and repayment history, they automatically improve as an individual's overall credit picture gets better. A higher score can result in a loan applicant's being offered a lower interest rate. "No credit score is forever. You can take steps today to begin improving your score," suggests Tim Raftis of the InCharge Institute of America, the nation's largest provider of credit counseling services and personal financial education. "Making small changes, such as using direct payment to pay bills automatically and on time, can significantly improve your payment history and score."