Credit Score Articles

How Does Payment History Affect Your Credit Score?

Payment history is the largest contributor of points to your credit score, which isn’t much of a surprise considering lenders use your score to evaluate how likely (or unlikely) you are to repay your debts. Lately, it’s become more critical that your credit history pass the test, as financial institutions have tightened their standards to protect themselves from risky borrowers.

Envision a pie-chart. Payment history makes up 35 percent of your credit score, and that percentage is broken down further to include various supporting components. Various components contributing to the points you receive under the umbrella category of “payment history” include, late payments or delinquencies, the severity of late payments and escalations such as accounts in collection or filing bankruptcy.

Each trade line on your credit report, such as each credit card account or auto loan, has its own detailed record of payment. Trade line data includes details of every payment made or those missed. Late payments are generally reported in 30-, 60-, 90-, 120- and 150-day increments; each incrementally worse for your credit score. Likewise, the impact worsens as more accounts become overdue.

Your payment history also accounts for actions taken against you for non-payment, such as collections or wage garnishment. Considered even more severe than a regular delinquent payment, these actions will tremendously detract from your credit score, and typically remain on your report up to seven years.

Filing bankruptcy represents the inability to pay. Thusly, the appearance of bankruptcy on your credit report is the most detrimental to your credit score and can continue to be reported up to 10 years.

Monthly bills that are not accounted for include: utilities, insurance, and cell phone plans. However, Experian, one the three major credit bureaus, recently began recording rent payments on one’s credit file.

Clearly the effect on your credit demonstrates the importance of paying your bills on time. Most companies or banks provide an automatic payment plan with a simple enrollment, that way you eliminate the stress of getting your bills paid in an already busy week. A long, positive history of paying bills on time is one of the pillars of a strong credit score, so learn what works for you.