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Focus on Payment History – This is the Most Important Credit Factor – Forbes Advisor

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Payment history is the record of a borrower’s payments on their credit accounts and other debts. As the most important factor when calculating a consumer’s credit score, payment history accounts for 35% of the FICO score calculation and is considered extremely influential in the VantageScore model. A strong payment history cannot guarantee a high credit score, but it is a necessary part of building a healthy credit profile.

Whether you’re struggling to make your payments on time or simply lost track of a due date, late payments on your debts can hurt your credit score. To help you strengthen this important part of your credit profile, Forbes Advisor shows you how payment history affects your score and what you can do to improve it.

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What does your payment history include?

When assessing a borrower’s payment history, the FICO scoring model takes into account these seven factors:

  • Payment information on individual accounts including, but not limited to, installment loans, mortgages, credit cards and retail accounts
  • How late are payments now or were they in the past
  • Amounts owed on overdue accounts, including accounts that have been sent to collections
  • Number of overdue payments on your credit report
  • Adverse public records like lawsuits, bankruptcies and wage garnishments
  • Length of time since each defaults, collection item, or adverse public record was added to your report
  • Number of accounts currently in compliance with payment terms

How Payment History Affects Your Credit Score

Payment history represents 35% of what constitutes your credit score. And, while payment history includes several individual elements, the extent of its impact on your credit score depends on the severity of the delay, when a late payment was made, and how often. you make late payments.

Notably, late payments cannot legally be reported to the credit bureaus until you are at least 30 days overdue. Once a late payment is reported, the later the payment and the more recent the late payment, the greater the negative impact on your credit score. Consumers who pay all of their bills on time have a strong payment history that is reflected in their credit rating.

It is imperative that you consistently make payments on time because, according to FICO data, it is possible for a borrower’s credit rating to drop as much as 180 points after a late payment. This is especially true for consumers with high credit scores, who are more likely to see a large decrease in their score as a result of late payments. That said, the effect of a missed payment ultimately depends on its delay and the consumer’s credit history.

How long negative payment history affects your score

Once reported to the credit bureaus, overdue bill payments can stay on your credit report for up to seven years. This is also true of entries and accounts that are sent to collections. If judgments have been made against you, they will remain in place for seven years or until the end of the time limit for bringing an action against you, whichever is longer. Likewise, completed Chapter 13 and 7 bankruptcies remain on your reports for seven and 10 years, respectively.

Despite these time restrictions, credit bureaus may keep relevant payment data on file after seven or ten years. Agencies may then disclose this information in certain circumstances, such as if you are applying for more than $ 150,000 for credit or life insurance or are looking for a job that earns more than $ 75,000 per year.

If this is your first time building credit, it can be difficult to overcome the effects of a short credit history. This means it’s even more crucial to establish a positive payment history early on, so your first seven years of credit aren’t marred by late payments – or worse – from accounts sent to collections.

Are all credit bureaus notified of a late payment?

If you make a payment more than 30 days after the due date, the lender will report it to at least one of the three major credit bureaus: Equifax, Experian, and TransUnion. That said, not all lenders send information about late payments to the three credit bureaus. Therefore, your credit reports may be different from office to office. Go through each of your reports at least once a year to keep an eye out for report errors that could be affecting your score.

How to correct payment history errors

If you believe there are errors in your credit report, you can dispute the error by contacting the appropriate credit bureau and the lender who reported the incorrect information.

Start by sending the credit bureau a letter or online request detailing the inaccurate information and requesting a correction. Be sure to include copies of all supporting documents for your claim and complete the office dispute form if necessary. Then send a letter to the company that provided the incorrect information, again detailing the disputed errors and providing evidence to support your claim.

Once you submit a dispute, a credit bureau has 30 days to investigate your claims. Within this period, the office also forwards the relevant evidence to the declaring creditor and contacts you if it needs additional information and documents.

Following the investigation, the credit bureau is required to send you the results in writing and, if necessary, to take steps to correct the information in your file. Finally, check your credit report to make sure the appropriate updates and corrections are made.

How to improve your payment history

In general, improving your credit score means improving your payment history. To do this, follow these tips:

  • Always pay your bills on time. The best way to improve your payment history is to always make your payments on time. However, it can seem difficult, especially if you are juggling a busy schedule and multiple accounts. Stay in control of your debt payments by setting up automatic or calendar payment reminders. If you’re struggling to make payments due to a lack of funds, review your spending habits and budget to control unnecessary purchases.
  • Get and stay on top of all missed payments. If you’ve ever made late or missed payments in the past, take steps to be up to date on all of your accounts. Overdue payments usually stay on a credit report for seven years, but the sooner you are up to date on payments, the sooner the impacts will diminish.
  • Follow a debt management plan. If you’ve made late payments in the past and are struggling to improve your credit score, consider following a debt management plan with the help of a nonprofit credit counseling agency. . Start by researching reputable credit counseling agencies through the Financial Counseling Association of America or the National Foundation for Credit Counseling.
  • Communicate with your creditors. If you are planning on making a late payment or having trouble repaying your debts, contact your creditors and keep the lines of communication open. Not all lenders are willing to do this, but some can adjust your payment schedule, lower your interest rate, or help you get checking accounts and pay off.
  • Consider a debt consolidation loan. A debt consolidation loan is a personal loan that allows borrowers to pay off their existing debts with just one loan. While this can’t reverse past payment delays or prevent future missteps, a debt consolidation loan can streamline your loans and make it easier to keep track of scheduled payments.

Increase your FICO® score instantly with Experian Boost ™

Experian can help you increase your FICO® score based on paying bills like your phone, utilities, and popular streaming services. Results may vary. See the site for more details.


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