Your credit scores are determined based on multiple factors, but your payment history carries the most weight. For example, payment history accounts for up to about 40% of your credit score.
That’s because the credit bureaus assume that your past behavior with credit can help predict your future behavior with credit.
What Is Payment History?
Your payment history is a measure of how well you’ve paid bills on time over a matter of months and years. If you always pay bills on time, you have positive payment history. But if you make a late payment or miss a payment, that will have a negative effect on your payment history.
Just one late payment might affect your credit, but it’s unlikely to have a big effect. However, frequent or habitually late payments are likely to have a more severe effect on your credit score. The highest credit scores often reflect that a person consistently pays bills on time.
What Accounts Are Included in Payment History?
Your credit report will include your payment history for a variety of credit products, including:
- Credit cards
- Mortgage loans
- Student loans
- Retail credit accounts
- Car loans
- Finance company accounts
How Is Payment History Calculated?
The credit bureaus rely on information from creditors to create a picture of your payment history. Most creditors or lenders report to the bureaus on a monthly basis.
If a payment is only a few days late, it may not affect your credit. But if your payment is more than 30 days past due, your creditor may report your lateness to the credit bureaus. If your payment is more than 60 or 90 days past due, the consequences to your credit will be progressively worse. When a late payment has been reported, its effect on your credit report will depend on several factors, such as:
- How late the payment is
- How many late payments you have (or have had in the past)
- How much money you owe on delinquent accounts or collection items
- How long it’s been since the account delinquencies
- Whether you have other adverse events on your credit report, such as bankruptcies
- The number of accounts on which you are staying current
How to Improve Your Payment History
Getting behind on payments is easy to do, but you can take deliberate steps to improve your payment history.
- Pay all bills on time. It may sound simple but paying every bill on time every month isn’t always easy. Create a budget to make sure you’ll have the money you need to pay every bill when it’s due. You may have to cut spending in some areas, but by making a few sacrifices, you can preserve your credit and build a stronger financial future.
- Contact creditors if you need help. Lenders and credit card issuers are often willing to help a customer who is diligently working to pay his or her bill. If you’re struggling to make payments, contact your creditors and ask if they can lower your interest rate or help in other ways to help you pay off your debt faster.
- Avoid using new credit. If you’re struggling to pay your current bills on time, it’s not a good idea to add more bills to the mix. Avoid opening new credit accounts or spending more on your current credit cards. Instead, create a budget or a spending plan that you can stick to while making on-time payments on all your bills.
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