Author: Heather Vale
January 29, 2024
Credit scores can go up and down based on several factors. But one of them has the biggest impact on your credit score.
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Your credit score is an important little number that follows you around and impacts all kinds of things related to your financial life. That includes the terms and interest rates on your credit cards and loans, and whether you even get approved for them in the first place. But it also sometimes affects your car insurance and home insurance rates. And it could go as far as determining whether you get a job or not.
So having a good credit score definitely makes your life easier, and saves you money in the long run. Some things you do will lower your score, and others will hopefully raise your credit score over time. Those actions include financial habits, purchases, and even major life events.
Hands down, payment history is the #1 thing that goes into calculating your credit score. Believe it or not, this one aspect counts for 35% of your FICO® credit score and over 40% of your VantageScore®.
If you want to stop reading now, you already have your answer. But in case you’d like a better understanding of what that means, let’s look a little deeper into the topic.
Your payment history is one part of your overall credit history. But it’s the most crucial part, because instead of just describing how long you’ve had various types of credit, it tells how diligent and responsible you’ve been with that credit. Which, of course, is what lenders care most about.
Your payment history is an overview of how and when you’ve paid your bills over the years. On-time payments are good, and past-due accounts are not. The types of accounts factored into this track record include credit cards, retail store cards, car loans, student loans, mortgage loans, and accounts from financial institutions.
Payment history includes:
The more times you paid late, and the more money you currently owe on past-due accounts, the more likely you are to have a lower credit score. The longer it’s been since you missed payments, or the longer you’ve been making on-time payments, the more likely it is that your credit score is higher.
The word “history” implies a long time, but your payment history only looks at a relatively recent period. If it gets reported, a late payment stays on your credit report for up to seven years.
A lot of other negative items remain in your credit report for up to seven years too, including defaulted loans, charged-off accounts, foreclosure, and some types of bankruptcy. But positive payment history can stay in credit reports indefinitely.
There are three major credit bureaus — Experian, Equifax and TransUnion — that compile credit reports. However, not every creditor or lender reports to credit bureaus about everything, and they don’t have to report to all three.
In fact, some creditors don’t report to bureaus at all. If they choose to be a data furnisher, or information furnisher, they have to apply to each bureau separately, meet some minimum technical requirements, and agree that all data reported will be complete and accurate.
So no, it’s not a given that all (or any) of the credit bureaus will definitely get notified about your late payments. But it’s better to assume that they do, and make your payments on time. Because otherwise you’re dealing with a potential seven-year ding on your credit report.
The best way to improve your payment history is to start paying all your bills on time, every time. While the negative items will still be on your credit report for a few years, you can begin to establish positive payment history every single month. As time goes on, that new habit of paying on time becomes more important than any past delinquencies.
Paying the minimum due is all you really need to do, but you can give your credit score an even bigger boost — and save a lot of money on interest charges — by paying off the full balance. This frees up your available credit, which in turn lowers your credit utilization ratio, and that counts for 30% of your credit score.
Payment history and credit utilization ratio have the biggest impact on your credit score, but a few other things get calculated into the equation as well. They’re weighted slightly differently depending on whether you’re looking at your FICO or VantageScore, but both models include the same basic considerations.
Credit scores are based on:
Your credit score is just about your relationship with credit, so it doesn’t include any personal identifying data that could indicate discrimination.
Credit scores don’t consider:
The most important thing to focus on when trying to improve your credit score is paying all your bills on time, every time. Other habits to develop include keeping at least 70% of your credit lines open, striving to have different types of credit, and not opening too many accounts at once — but not closing the older ones, either. Even if you’re not using them, keeping those well-established accounts helps to fill out your credit history.
Of course, you need at least one credit card to establish a good credit score. If you’re looking for one that offers rewards and other perks, see if you pre-qualify for an offering from Credit One Bank.
About the author:Heather Vale
For over a quarter of a century, Heather has been working as a journalist in all media: TV, radio, print, and online. After establishing her career in Toronto, she has been living, working, and playing in Las Vegas for the past decade. She loves pulling apart complicated topics to make them simple, fun, and easy to understand, especially in the business and financial niches. But she also enjoys writing about the personal side of life, including success, relationships, families, and pets. She approaches everything from a yin-yang perspective, so her passion for wordplay and entertaining metaphors is always balanced with an intense (and some would say annoying) focus on facts and accuracy.
This material is for informational purposes only and is not intended to replace the advice of a qualified tax advisor, attorney or financial advisor. Readers should consult with their own tax advisor, attorney or financial advisor with regard to their personal situations.
Your credit score is a number that represents your creditworthiness to lenders. It is influenced by—and can influence—the following:
The scariest part of change can be the unknown. But sometimes the known, as in continuing with the same behaviors that aren’t achieving the desired results, can be even scarier. Take your credit. If a good credit score is important to you but seems to consistently elude you, it may be time to alter or abandon some of the habits and behaviors keeping it at bay and adopt new ones.