Quick AnswerPayment history is the most important factor of your credit score, making up 35% of FICO® Scores.
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Your credit score may seem to be the product of a mysterious mathematical formula, but the factors that go into calculating your credit score are fairly straightforward. You may be aware that you have a credit score—and probably several scores—but do you know how your scores are calculated?
The most crucial component of your FICO%C2%AE%20Score%E2%98%89%20, which 90% of the best lenders use, is your payment history or how well you’ve handled your credit accounts. The amounts owed on your credit accounts, or more precisely, the percentage of your available credit that you are using, come in close second. The three other factors carry less weight. Heres what you need to know.
Yes, payment history is the most important factor in your credit score, accounting for 35% of your FICO® Score. This means that making timely payments on all your bills is crucial for maintaining a good credit score.
Why is Payment History So Important?
Lenders want to know that you’re a reliable borrower who will repay your debts on time. Your payment history is the best indicator of your ability to do so. If you have a history of making late payments or missing payments altogether, it will negatively impact your credit score
What Bills Affect My Payment History?
Several types of bills affect your payment history, including:
- Credit cards: Mastercard, Visa, American Express, Discover, and store credit cards.
- Installment loans: Auto loans, mortgages, and personal loans.
- Bills from finance companies.
- Bills from phone, utility, cable TV, and streaming service providers.
You can link your online payment history for these bills to your Experian credit report with Experian Boost®. If you have a history of paying these bills on time, this can help raise your credit score.
How Long Do Late Payments Stay on My Credit Report?
Late payments can stay on your credit report for up to seven years. But eventually, the effect of a late payment on your credit score lessens.
How to Improve Your Payment History
If you’re looking to improve your payment history, here are a few tips:
- Catch up on past-due payments. Bringing unpaid bills current will help your score over time.
- Activate automatic bill payments. This will help you avoid missing payments due to forgetfulness.
- Set up payment alerts. Many creditors allow you to create reminders to inform you when upcoming payments are due.
Other Factors That Impact Your Credit Score
While payment history is the most important factor, other factors also affect your credit score:
- Amounts owed (30%): This refers to the amount of available credit you’re using, also known as your credit utilization ratio. Keeping your credit utilization low is essential for a good credit score.
- Length of credit history (15%): A longer credit history generally leads to a higher score.
- Mix of credit types (10%): Having a mix of credit accounts, such as credit cards and installment loans, can help your score.
- New credit (10%): Opening several new credit accounts in a short period can negatively impact your score.
The Bottom Line
Payment history is the most important factor in your credit score. By making all your payments on time, you can build a good credit history and improve your credit score over time. Regularly check your credit report and score to ensure your payment history and other aspects of your credit are in good shape.
Frequently Asked Questions
Q: What is the best way to improve my payment history?
A: Paying all of your bills on time is the best method to enhance your payment history. Make sure to pay any past-due amounts as soon as you can. To prevent missing payments, you can also set up automatic bill payments or payment alerts.
How much time does it take for me to start making on-time payments and for my credit score to rise?
A: It can take several months for your credit score to improve after you start making on-time payments. However, the impact of late payments on your credit score fades over time, so you will see a gradual improvement in your score as you continue to make on-time payments.
Q: What is Experian Boost®?
A: Experian Boost® is a free service that allows you to connect your online payment history for phone, utility, cable TV, and streaming service providers to your Experian credit report. This can help improve your credit score if you have a history of making on-time payments on these bills.
Q: How can I check my credit score?
A: You can check your credit score for free from Experian, TransUnion, and Equifax. You can also get your credit score from some credit card companies and banks.
Q: What is a good credit score?
A: A good credit score is generally considered to be 670 or higher. However, the specific credit score you need to qualify for a loan or credit card will vary depending on the lender or issuer.
Additional Resources
- Experian Credit Education: https://www.experian.com/blogs/ask-experian/
- Wells Fargo Credit Management: https://www.wellsfargo.com/financial-education/credit-management/calculate-credit-score/
- FICO® Score: https://www.myfico.com/
Payment history is the most important factor in your credit score. By making all your payments on time, you can build a good credit history and improve your credit score over time. Regularly check your credit report and score to ensure your payment history and other aspects of your credit are in good shape.
How to Improve Your Payment History
The easiest advice is to always pay your bills on time and make sure you have budgeted enough money to cover them if you want to improve your payment history and possibly raise your credit score. Other recommendations include:
- Catch up on past-due payments. Bringing unpaid bills current will help your score over time.
- Activate automatic bill payments. By setting up automatic payments, you can lower the likelihood that a bill will go unpaid.
- Set up payment alerts. You can set up reminders with many creditors to let you know when payments are due.
How Long Do Late Payments Stay on Credit Reports?
Late payments can stay on your credit report for up to seven years. They can damage your credit score, but the effect on your score fades over time.
Not all late payments show up on your payment history, however. Your credit won’t be harmed if you pay your credit card issuer a late fee if you choose to make the payment one day or one week after the due date instead of on time.
The reason for this is that credit card issuers will not report a late payment to the three major credit bureaus—Experian, TransUnion, and Equifax—until the end of the billing cycle, which is thirty days.
The situation changes if the payment is more than 30 days late. In this instance, how long your account was past due before you made a payment will determine how it affects your credit scores. Accordingly, a payment that is sixty days overdue will cause more damage than one that is over thirty days overdue, but less damage than one that is ninety days overdue.