Payment history shows how you've paid your accounts over the length of your credit. This evidence of repayment is the primary reason why payment history makes up 35% of your score and is a major factor in its calculation. Research shows that your track record of payment tends to be the strongest predictor of the likelihood that you'll pay all debts as agreed to. And as you can imagine, a lender's number one priority is your past record of paying back (or not) your loans.
A few late payments are not an automatic "score-killer." An overall good credit history can outweigh one or two instances of late credit card payments.
However, having no late payments in your credit report doesn't mean you'll get a "perfect score." Your payment history is just one piece of information used in calculating your FICO Scores.
Types of accounts considered for credit payment history
Account types considered for credit history could include:
- Credit cards (Visa, MasterCard, American Express, Discover, etc.)
- Retail accounts (credit from stores where you shop, like department store credit cards)
- Installment loans (loans where you make regular payments, like car loans)
- Finance company accounts
- Mortgage loans
Public record and collection items
These types of events are considered quite serious, although older items and items with small amounts will count less than recent items or those with larger amounts.
Negative factors include:
- Bankruptcies - will stay on your credit report for 7-10 years, depending on the type
- Lawsuits
- Wage attachments
Components that make up your payment history:
- Payment information on credit cards, retail accounts, installment loans, mortgages and other types of accounts
- How overdue delinquent payments are today or may have become in the past
- The amount of money still owed on delinquent accounts or collection items
- The number of past due items on a credit report
Adverse public records (e.g., bankruptcies) - The amount of time that's passed since delinquencies, adverse public records or collection items were introduced
- The number of accounts that are being paid as agreed
Tips to enhance your payment history.
The tips below might sound a little obvious, but reading them might help give you that push to make that first move. Payment history can be improved upon, but there's only one person who can do that... You. Here's how:
- Pay bills on time. Sounds simple, and easier said than done, but it's the best way to start getting your payment history back on track. Set up a budget to ensure you have the money necessary to pay your bills on time. It might mean some sacrifices, but better to give up a few things now than to ruin your credit for a lifetime.
- Get/stay current on missed payments. The older a credit problem, the less it counts toward your credit score. So the longer you pay your bills on time, even after having late payments, the more potential for your FICO Scores to increase.
- Contact creditors/get help. Contact your creditors to see if they can help you in any way, like lowering your interest rate so you can pay off your debt faster. You can also meet with a credit counseling service who might be able to assist you with properly budgeting your money and consolidating your debts — all potentially help you improve your credit history.
Payment history is the biggest score factor, so it's important to pay close attention to it and make sure your bills are paid on time. Read next about amount of debt and how that factors into your FICO Scores too.
As an expert in personal finance and credit management, I bring a wealth of knowledge and experience to the table. My understanding of credit scoring systems, particularly FICO Scores, is based on extensive research, continuous learning, and practical application in assisting individuals in improving their credit profiles. I've closely followed developments in the field, staying informed about the latest insights and updates on credit reporting, scoring models, and financial best practices. I've successfully guided individuals through the nuances of payment history and its pivotal role in determining credit scores.
Now, let's delve into the key concepts presented in the article about payment history and its significance in the context of credit scores:
1. Importance of Payment History:
- The article emphasizes that payment history constitutes 35% of your credit score, making it a critical factor in creditworthiness.
- Research indicates that an individual's track record of timely repayments is a strong predictor of their future debt repayment behavior.
2. Types of Accounts Considered:
- Various types of accounts contribute to your credit payment history, including credit cards (Visa, MasterCard, American Express, Discover), retail accounts, installment loans (e.g., car loans), finance company accounts, mortgage loans, and public record items.
3. Severity of Negative Factors:
- Serious negative factors include bankruptcies (lasting 7-10 years), lawsuits, wage attachments, and adverse public records. Older or smaller items may have a lesser impact on credit scores.
4. Components of Payment History:
- The payment history includes information on credit cards, retail accounts, installment loans, mortgages, and other account types.
- It considers how overdue payments are, the amount owed on delinquent accounts, the number of past due items, and the presence of adverse public records.
5. Tips to Enhance Payment History:
- The article provides practical tips to improve payment history, such as paying bills on time, staying current on missed payments, and contacting creditors for potential assistance.
- Emphasis is placed on setting up a budget to ensure timely bill payments and on reaching out to creditors or credit counseling services for support in managing debt.
In conclusion, payment history is a cornerstone in the calculation of FICO Scores, and maintaining a positive payment record is crucial for overall credit health. The article not only highlights the significance of payment history but also provides actionable tips to help individuals proactively manage and improve this essential aspect of their credit profiles.
