Your credit history is an indicator of how likely you are to repay your debts, so it makes sense that your payment history is the most important factor in your credit score. Exactly how payment history is reported and how it affects you, however, can vary based on the type of loan and the credit scoring model that’s being used.
As a blanket rule, it’s always best to pay your bills on time. But if you’re looking for a more in-depth look at how your payment history affects your credit, keep reading.
As the term suggests, your payment history is a record of your past debt payments. With the most commonly used scoring model, the FICO Score, payment history is the most influential factor in how your credit is assessed, making up 35% of your credit score. As a result, it’s important to focus on whether you’re working to build your credit history or maintain a good score.
In contrast, the VantageScore only states that your payment history is moderately influential, favoring credit mix and experience and total credit usage, balance and available credit. Because the FICO Score is more widely used by lenders, however, it’s best to use its weighting as a guide.
While your payment history is part of your overall credit history, the two “histories” are not the same. Your credit history incorporates more than just your payment history. Your credit history also considers other aspects of your credit journey, including how much you owe, the length and mix of your credit history, and recent credit applications.
So while your payment history is important, it’s not the only factor to consider when building credit.
Your payment history represents how you’ve handled your debt payments over the years. Most major lenders and credit card issuers report payment activity to the three consumer credit reporting agencies once a month.
In general, your credit report will only list whether the payment was on time or not — not how much you paid.
A missed payment can affect your transaction history, especially if it happens more than once. That said, installment loans typically list the monthly payment as part of the tradeline, and credit card issuers may include the minimum payment required.
If you allow an account to go delinquent, that account will negatively affect your payment history. And the longer that credit account is delinquent, the worse that impact will be.
All of these negative items indicate that you did not repay the debt as originally agreed.
All that said, there's no easy way to tell exactly how an on-time or a late payment will affect your payment history credit score. Even FICO's 35% figure is an estimate, and the exact impact can vary based on your credit history as a whole.
For example, a late or missed payment with a limited credit history can cause a much more drastic drop in your credit history than with an established credit history.
Finally, consider that your payments don’t always help or hurt you.
“Lenders aren't required to report your payments to credit bureaus,” says Chane Steiner, CEO of Crediful, a credit education website. “If you're making payments on time check your credit report. If the payments don't show up you can contact the lender and ask them to report your payments.”
If they won’t, consider refinancing the loan with a lender that will report on-time payments.
In general, utility accounts, rental payments and business loans and credit cards don’t influence your personal payment history. There are, however, some exceptions to this rule.
For example, if you stop making payments to your utility company, landlord or business lender, it may send the account to a debt collection agency, which may report the debt on your personal credit reports.
Also, business credit card issuers may choose to report negative account activity if you’re delinquent but not quite to the collection stage yet. Some business card issuers, including Capital One and Discover, report all of your account activity to the consumer credit reporting agencies, which can hurt your credit if your business runs into financial struggles.
Finally, the credit bureau Experian recently launched a program called Experian Boost that allows you to use positive utility and phone payments to potentially increase your FICO Score. Simply connect your checking account and pick which payments you want to include (negative payment history won’t be included).
Just keep in mind that while this program can potentially increase your credit score, that doesn’t necessarily mean it’s the same score that lenders will see when they run a credit check.
Missing a payment can be costly, not only due to late fees but also because of how it can affect your credit.
One thing to know, however, is that a late payment doesn’t impact your credit score at all until it’s been late for 30 days. So if you made a mistake and missed a payment, then got caught up the next day, you may be on the hook for a late fee and interest (if it’s a credit card). But it won’t ding your credit score.
Once it’s 30 days late, however, the lender will report it as such, and it can reduce your credit score.
The longer it’s late, the more negatively it’ll impact your score, and multiple late payments can have a compounding effect on your score. So it’s important to get caught up on delinquent accounts as quickly as possible.
“Failing to make timely payments can result in penalties which increase the amount of debt you're carrying,” says Steiner. “Your credit score then takes two hits, one for not making payments and another for carrying more debt.”
But don’t worry about a late payment affecting your score differently on a mortgage loan versus a credit card or other type of debt. Late is late and the credit scoring models don’t discriminate based on the loan type.
Even so, getting current on a late payment will still affect you for years to come. That’s because a late payment will remain on your credit report for seven years. In contrast, positive payment history stays on your credit report for 10 years.
Don’t worry about a late payment keeping your score low for seven full years, though. In general, credit scoring models favor new information over old information. And if a lender sees that you were late on a payment five years ago but have had perfect payment history since, it’s unlikely that will have a major impact on their decision.
If you have an installment loan, such as a personal, student, car or mortgage loan, you’ll typically have a set monthly payment for the duration of your loan term. In general, this is how much you have to pay each month to avoid a late payment. In other words, a partial payment won’t do.
With credit cards, however, the minimum monthly payment is usually calculated as a percentage of your balance and interest. As long as you make the minimum monthly payment, you’re on time.
While making just the minimum payment isn’t great for your finances — carrying a balance from month to month on a credit card can be expensive — it won’t wreck your credit. So if you’re struggling financially, focus on paying at least the minimum amount to keep yourself in good standing.
When a lender offers you a loan or a credit card, its biggest concern is making sure it gets its money back, preferably with interest. As a result, your payment history is an incredibly important consideration for creditors as they determine whether or not to approve your loan or credit card application.
“It's the most relevant data reflective of someone's willingness and ability to repay debt,” says Steiner. “If a friend has a reputation for not paying anyone back, you wouldn't want to let them borrow money.”
If you have a history of missing payments, you may have a hard time getting approved for a loan or credit card. Delinquent or even collection accounts aren’t necessarily a guarantee that you’ll get denied, however. Some lenders may be willing to lend to what they consider high-risk borrowers, although those lenders may charge higher interest rates to compensate for the increased risk.
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If you’re experiencing financial hardship, don’t wait until a payment is late before you do something. Reach out to your creditor to find out what your options are. Depending on the situation, you may qualify for a deferment or get on a modified payment plan that can keep your debt from being considered delinquent.
Options can vary by lender and loan type. But to prevent potential problems, start this process as soon as you think you might not be able to make your payment. Otherwise, it could be too late.
We all make mistakes, and lenders and credit bureaus are no different. If you check your credit report and notice a late payment that shouldn’t be there, reach out to the creditor first to try to resolve the issue. If there’s a dispute, provide proof that you made the payment on time, either with a bank or credit card statement, or even a receipt if you have one.
If you can’t resolve the issue with the creditor, file a dispute with the credit reporting agencies. Again, include your evidence and the agencies will investigate the issue and remove the negative item if it rules in your favor.
Once this happens, you'll generally see a relatively quick increase in your credit score as it no longer includes the negative account information.
Learn how to fix errors on your credit report at the blog “Fixing Errors on Your Credit Report.”
If you’ve missed payments in the past, the sooner you get back on track, the better. Check your credit report to make sure you’re all caught up, then work on maintaining a positive payment history going forward.
If there are other things you can do to improve your credit score, such as disputing erroneous information, paying off credit card debt or limiting new credit applications, do these as well.
While it can take time to recover from late payments and other negative payment-related items, remember that new positive information can help reduce the impact of old negative account information.
In other words, work on maintaining good credit behaviors and be patient as your actions take effect.
While it’s important to know how to recover from a negative payment history, it’s even more crucial that you make sure you never have to deal with it in the first place.
For starters, always run the numbers with your budget to make sure you can afford any new debt you take on. Just because the lender thinks your debt-to-income ratio is low enough doesn’t mean you can afford it.
Second, consider setting up automatic payments on all of your debt accounts to avoid even the potential that you’ll forget to make a payment. If you do this, also be sure to keep enough cash in your checking account — or have a fee-free overdraft protection system in place — to make sure you don’t have any payments returned due to insufficient funds.
Finally, work on maintaining an emergency fund in case something happens, and you don’t have the income you need to make payments on time. Even a small buffer can give you a month or two to get your finances in order or request a modified payment plan or deferment from the lender.
Ben Luthi is a personal finance writer who has written for NerdWallet, Student Loan Hero, US News and World Report, as well as other major media outlets. He holds a bachelor’s degree in finance from Brigham Young University. See Ben on Linkedin and Twitter.
Lauren Bringle is an Accredited Financial Counselor® and Content Marketing Manager with Self Financial – a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.