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How your payment history affects your credit score

A significant part of your credit score is how well you stay on top of bills.

“Pay your bills on time” is a financial mantra that sounds easy enough to follow. But sometimes personal finances get put on the back burner, especially when life doesn’t go as planned.

One or two slip-ups may not irreparably damage your credit score. But you might want to understand how late payments factor into your overall creditworthiness.

What is a payment history?

Your payment history is a record of on-time, late and missed payments on past and current credit accounts. These accounts can include credit cards, lines of credit, personal loans and mortgages.

Your payment history indicates to a potential lender the likelihood of you successfully repaying your debt — or going into default.

It also factors into a significant percentage of your credit score. Though exactly how much it contributes isn’t clear — scoring models like to keep their algorithms close to the vest.

FICO, however, claims that 35% of your FICO Score comes from the behaviors revealed by your payment history.

What’s not included in my payment history?

Recurring payments — such as monthly office or apartment rentals — aren’t a typical part of your payment history. Neither are payments to electric and water utilities or services like home and office maintenance.

If you fail to pay these bills and your unpaid debts end up in collections or legal suits against you, they could end up on your payment history, ultimately hurting your credit score.

How does my payment history affect my credit score?

Most potential creditors or lenders look at your payment history to see if you’ve ever missed a payment. Many late payments in your financial history can pull down your credit score.

Payments made far after their due dates ultimately weight more heavily on your score. This is because negative scores tend to increase the longer it takes you to repay your obligations.

A payment history that’s free of late payments doesn’t guarantee a high score, however. Neither will a handful of late payments dramatically decrease your score if the rest of your financial history is stellar.

Credit bureaus consider several factors in computing your credit score, often using a proprietary algorithm.

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How do creditors and lenders weigh late payments specifically?

When focusing on late payments, banks and lenders also consider:

  • How late your payments were. Payments are generally reported as 30, 60 and 90 days late. The higher the number, the more severe the negative effect on your credit score.
  • How recent you paid late. If your late payments are grouped years back, they might not affect your score much in the present.
  • The number of late payments. The more bills you’ve paid late, the lower your score might be.
  • How much you owed. The bigger the amount, the greater the impact on your score.

Also considered in your payment history are publicly available bankruptcies, foreclosures, some liens and lawsuits.

Who reports my payment history?

Most of your creditors report the information related to your open accounts — including your payment history — to the 2 major credit bureaus: Equifax and TransUnion.

Each bureau weighs that information slightly differently, running in through a complex algorithm to ultimately compute your credit score.

Not all lenders report to both credit bureaus, however, resulting in credit score variations that depend on the bureau.

When are late payments reported to the credit reporting agencies?

Generally, creditors and lenders have the right to report late payments of 30 days or more to the bureaus. If you have a good relationship with your creditors, however, most give you more time to pay your obligations before reporting you.

For late payments of 90 or more days, a lender can charge off your account and send it to collections. Collections can stay on your payment history, pulling down your credit score for years.

How long do these negative marks stay on my credit report?

Your credit report can include late payments and other black marks for as long as 6 years. Bankruptcies also remain on your report for as long as 6 years.

An imperfect credit report or payment history doesn’t mean that you can’t get a loan or credit card before these 6 years are up, however. Depending on the creditor, you could be considered a low credit risk regardless.

How to dispute negative marks on your credit report

4 ways to remove late payments from your credit report

You have four ways to request late payments removed from your report:

  1. Write a goodwill letter. If your relationship with a creditor is otherwise positive, ask if it’ll grant a goodwill adjustment. If it agrees, the late payment is “forgiven” and scrubbed from your report.
  2. Sign up for autopay. Your creditor may be willing to overlook a late payment if you can assure them of regular payments in the future.
  3. File a dispute. If the late payment shouldn’t be there in the first place, contact the credit bureau to have it removed. A response is legally required within 30 business days.
  4. Hire credit repair professionals. Reputable credit repair companies can help you not only remove a late payment but also repair your overall report.

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What should I do if I know I’m going to make a late payment?

Because most lenders wait to report late payments until at least 30 days after your due date, you’re likely fine if you pay before then.

But if you’ve hit a financial hurdle and know you can’t pay, immediately contact your creditor and explain your situation and how you expect to resolve it. Be ready to provide a timeframe in which you’ll pay. Paying even a partial amount is a measure of good faith.

Creditors don’t like late payments, but in the end, they simply want you a straightforward plan for when they can see payment. By contacting them, you’re taking responsibility for your obligation, despite your difficulty in meeting it at that moment.

Tips to staying on top of your payment history

You’ve likely heard at least a few of these tips, but they’re worth repeating among others you might not have considered:

  • Pay your bills on time. If you have to be late, strive to settle your debts within 30 days after your due date.
  • Set monthly reminders. That way, you won’t miss a payment due to your busy schedule.
  • Sign up for autopay. Never again worry about a late payment. Just make sure to keep sufficient funds in the accounts you’re pulling from.
  • Move your due dates. If a different date would better suit your salary schedule, your creditor may be willing to adjust when bills are due.
  • Practice responsible spending. Keep your loan and credit card balances low or at easily manageable levels.
  • Monitor your credit reports. If you find an entry that’s not correct, contact the credit bureau to dispute the information.

Perks of a good credit score

Bottom line

Your payment history is a record of successful, late and missed payments that potential creditors and lenders rely on to determine their risk in taking you on as a borrower.

The information within it also contributes to a significant percentage of your overall credit score. Paying outstanding obligations on time goes a long way toward improving or maintaining your credit score. And a strong credit score often results in more competitive interest rates and terms when you apply for a loan or credit card.

To know more about credit scores and the factors that go into their computation, check out our guide to credit scores.

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