Paying bills on time is important, but when you’re writing that check or clicking “pay now” online, you may not realize just how important it is.
Your payment history — a record of how successfully you’ve paid your debts over time — is a major factor in your credit score. Paying credit card bills and loans on time contributes to a higher score, while late and missed payments reflect poorly on your credit reports and negatively impact your score. Good credit can lead to lower interest rates and a higher chance of loan approval, among other benefits.
When it comes to understanding how payment history impacts credit score, here are a few things to know.
What is payment history?
Your credit reports include a variety of information related to different credit accounts and public records. The payment history portion is all the data that’s related to your history of making or missing payments, and you can think of the data as being positive or negative.
Payment history can help or hurt your credit score — it all depends on what reporting agencies glean from your payment activity.
Aspects of your payment history that can help your credit score:
- On-time payments
- Consistent on-time payments
- Multiple accounts with on-time payments
- Long-term accounts with positive payment history
Things in your payment history that can hurt your credit score:
- Late payments
- Number of days the payment is late (e.g., 30-, 60-, 90-days late)
- Collection accounts
- Settled accounts
- Repossessions or voluntary surrenders
It’s hard to say how any one of these elements will directly affect your score — it depends on the item and your overall credit profile.
For example, a single late payment might not actually lead to a drastic drop in your credit score if you have an otherwise lengthy credit history filled with on-time payments. Multiple accounts with late payments or falling far behind on a single bill could compound the problem.
What does payment history consist of?
Credit reporting agencies typically include payment history on the following types of accounts:
- Credit cards
- Retail/department store cards
- Installment loans
- Mortgage loans
- Other finance accounts, such as lines of credit
According to FICO, there are seven components of payment history:
- Payment information on the above types of accounts
- Current and past overdue payments
- Amount owed on current delinquent accounts
- Number of past due items and adverse public records, such as bankruptcies
- How much time has passed since delinquencies, adverse public records or collection items
- Number of accounts in good standing
How important is payment history?
Payment history is key to having a strong credit score. FICO, for example, uses five categories to determine credit scores — and payment history is the most influential factor. The five are:
- Payment history (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- New credit (10%)
- Credit mix (10%)
How late is late?
Most creditors don’t report you as late the day you are overdue. Creditors only report accounts that are at least 30 days past due. However, if you bring the account current before it is reported to the bureau, the lender may not report it. The important thing is to work with your lender.
How long does payment history stay on your credit report?
Information can stay in your payment history for seven to ten years. The Fair Credit Reporting Act (FCRA) is a federal law that governs how long certain information can remain in your credit report. Once an item drops off your report, it will no longer be a ranking factor in your credit scores.
Most negative items fall off your credit report seven years after they’re reported to a credit bureau. If you were late multiple months in a row, the timeline starts with the first late payment and the entire sequence will be removed after seven years.
One exception is for bankruptcies, which may remain on your credit report for up to 10 years, depending on the type of bankruptcy.
However, just because something is on your credit report, it doesn’t mean that it’s significantly impacting your credit score. Often, the most recent entries have a more meaningful effect on your score.
3 tips to improve payment history
There are several actions you can take that may help you improve your payment history and credit scores:
1. Open accounts that report to the credit bureaus when you need credit.
2. Always make on-time payments, even if you can only afford to make a minimum payment.
3. Only use a small amount of your available credit limit on credit cards and then pay the bill in full each month.
Payment history and RISE loans
RISE works with borrowers who may have a mixed payment history and want to improve their credit.
RISE reports payment history to major credit bureaus, enabling customers to build credit with positive financial behavior.
RISE also offers a free Credit Score Plus program, which you can use to track your TransUnion® VantageScore® and receive free credit alerts to make sure that your credit is heading in the right direction.
The content provided is for educational and informational purposes only and does not constitute financial or legal advice. RISE is not acting as a credit counseling or repair service, debt consolidation service, or credit services organization in providing this content. RISE makes no representation about the reliability or suitability of the information provided – any action you take based on this content is at your own risk.