How does my Payment History affect my credit score?

by Manshu on August 27, 2008

in Articles

Payment History is the biggest component of your FICO credit score and it weighs for as much as 35% of the overall score. This is because lenders are most interested in knowing how have you handled debt and how timely have your repayments been.

What is interesting to note is that 60% of the credit reports do not show any late payments at all. Somehow there is a misconception among a lot of people that if they are paying off their debts in time then their credit report will be perfect. In fact, even if you have repaid all your debts on time, you are like 60% of the remaining population and will need to build on the other four aspects of your credit score to get a really awesome credit score.

What kind of bills are considered in my payment history?

  • Credit card payments like Visa and MasterCard
  • Retail store credit cards like Macy’s or Amazon
  • Installment loans like car loans where a periodic installment is made
  • Mortgage loans
  • Finance Company loans

Apart from late payment on the items listed above, there are some serious things that can really hamper your payment history. For example a bankruptcy can mar your credit report for as long as seven years. This is a list of events that will damage your payment history apart from the ones listed earlier:

  • Bankruptcies
  • Foreclosures
  • Suits
  • Wage attachments
  • Liens
  • Judgments

How is my credit history affected by a late payment or two?

What you want is a perfect payment history record but the FICO score looks at your overall payment track record and one or two late payments will not kill the rest of your score.

While calculating the penalty for late payments FICO considers three things – how long did you default the money for? (60 days is worse than 30), how much money did you default on? and how recent was it? (default that was done a week ago will affect you more than a year old default)

What if I have already defaulted on a payment?

If you have already defaulted on a payment then try and get on track as fast as possible. The best and only way to repair this is to keep paying bills on time and keep paying them for as long as you can.

Remember if you have defaulted on a bill, then paying it in full and then closing the account will not remove it from your record, it will still stay there.

You can even seek credit counseling if you are facing trouble repaying your debt. As far as your credit score goes, you will not be penalized for seeking credit counseling.

So there you have it, payment history is the biggest component of your credit score and is somewhat like a catcher. You catch 100 catches and you are still like the remaining 60% of your peers, but if you start missing a few then you are out of the leagues!

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