How Does Payment History Affect Your Credit Score? Here is the Truth.

Written by Kim PinnelliUpdated: 28th Jan 2021
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Your payment history is the number one factor affecting your credit score. One mistake and you could damage your credit score for months.

Is it really as bad as it sounds? I uncover the truth below.

What is Payment History?

Your payment history is a record of how you pay your bills. It tells lenders if you pay your bills on time, miss payments, or default on your bills completely.

The history is what lenders focus on – they want to know if you’ll pay your bill on time if they lend you money.

Credit bureaus focus on it too. It makes up 35 percent of your credit score, which is the largest percentage of your credit score calculation.

How Is Your Payment History Determined?

Your creditors report your payment history to the credit bureaus monthly. They’ll report if you paid the bill on time or late.

If it’s late, they report it in increments of 30 days. If you pay your bill 15 dates late, for example, the credit bureaus won’t know. If you pay it 31 days, late, though, it shows up as a 30-day late and 61 days late is a 60-day late.

What Payment History Consists Of

Your payment history consists of:

  • Your payment history on credit cards, installment loans, and mortgage loans
  • Any public records, such as bankruptcies or foreclosures
  • The dates of any late payments
  • The number of late payments
  • The number of good accounts compared to bad accounts

Type of Accounts Considered for Credit Payment History

  • Credit cards
  • Car loans
  • Personal loans
  • Mortgage loans
  • Finance company loans

How Does Payment History Affect Your Credit Score?

Your payment history can make or break your credit score. A good payment history (no late payments) will help your credit score.

A bad payment history will hurt your credit score. Fortunately, you can reverse the damage if you bring your late payments current. It takes a few months, but your score may bounce back.

The problem is that lenders will see the late payments and may count them against you.

Learn More: What Affects Your Credit Score?

How to Improve Your Payment History

#1. Make On-Time Payments

Avoid making late payments. Set up automatic payments or note your due dates on the calendar and pay your bills by the due date.

#2. Payoff Missed Payments

Life happens. If you miss a payment, make it as soon as you remember. If it’s less than 30 days late, it won’t hurt your credit. If it’s more than 30 days, give it about 12 months, and it won’t affect your credit score or what lenders think of you as much.

#3. Monitor Your Credit

Creditors and credit bureaus make mistakes occasionally. If you check your credit report often, you’ll catch the mistake fast. Write a dispute letter to the credit bureau providing proof of the on-time payment and have it fixed.

Monitoring your credit will make sure you do not make a mistake and catch the errors made by third parties.

Learn More: Best Credit Monitoring Services

#4. Get Help from Your Creditors

If you can’t make your payments on time, talk to your creditors. Don’t ignore them. They may offer more help than you realize, but only if you admit that you need help.

How Is Your Payment History Used?

Your payment history shows up on each of your three credit reports. It shows lenders (insurance companies and employers too) how you handle your finances.

One or two late payments may be a caution flag to lenders, but a series of late payments will be a red flag making lenders avoid lending to you.

Bottom Line: How Payment History Affects Your Credit Score

Don’t pay your bills late if you can help it. A late payment is the number one way to hurt your credit score and decrease your chances of loan approval.

If it happens, fix the mistake as quickly as you can. The faster you fix it, the faster your credit score will improve.

More Credit Resources:

Kim Pinnelli
Kim Pinnelli

Kim Pinnelli is a Senior Writer, Editor, & Product Analyst with a Bachelor’s Degree in Finance from the University of Illinois at Chicago. She has been a professional financial writer for over 15 years, and has appeared in a myriad of industry leading financial media outlets. Leveraging her personal experience, Kim is committed to helping people take charge of their personal finances and make simple financial decisions.