Know Your Credit Score: Payment History

payment history

In this five-part series, we’re breaking down the five different categories that make up your credit score. Today we’re talking about Payment History.

It’s pretty obvious that missing a payment on your credit card isn’t going to be good for your credit. But exactly how “not good” would it be? Just a little not good? Or like super duper not good?

Well, as it turns out, missing a payment or making it late could have a pretty big impact on your score. That’s because your payment history is the single largest factor in determining your score.

What is your payment history? 

“Your payment history includes your on-time, late payment and missed or non-payment information,” says attorney Stephen Lesavich, PHD, (@SLesavich), best-selling author of The Plastic Effect.

When a lender is assessing your application for a loan or a credit card, it’s very important to them that you make your payments on time.

So if you have a history missing your payments or making them late, that sends lenders a signal that you’re likely to default on your loan altogether.

How important is your payment history?

Your payment history is one of the most important factors in your credit rating. It accounts for 35 percent of your overall credit score, more than any other individual factor.

(However, it must be said that your Amounts Owed, which we covered last week, are also very important, accounting for 30 percent of your overall score.)

With over a third of your score dependent on you making your payments, it’s safe to say that making your payments late is a bad idea.

“Making late payments or missing payments if the quickest way to have your credit score drop significantly,” says Lesavich

What’s included in your payment history?

“Payment history typically includes payment information for credit cards, mortgages, loans, retail accounts and lines of credit,” says Lesavich, who also lays out what those different categories include:

  • The loans include student loans, auto loans, other loans, etc. that are paid in installments.
  • The retail accounts include credit cards and lines of credit from department stores, etc.
  • The lines of credit include home equity lines of credit and other lines of credit.”

Basically, if you’ve borrowed money in any form, it’s payments are going to be reported to the credit bureaus and will factor into your score.

With one notable exception…

What’s not included in your payment history?

Notice that he didn’t include short-term bad credit loans, such as payday loans and title loans. That’s because the vast majority of these lenders do not report your payment information to the credit bureaus.

While this means that missing a payment on a payday and title loan might not hurt your score, it also means that making your payments on-time won’t help your score either. Plus, if the lender decides to send your unpaid debt to a debt collection agency, the agency likely will report the debt.

“Collection account information remains on your credit report for 7 years from the date the first account became past due causing the account’s placement with a collection agency,” says Lesavich.

That’s true for all kinds of debts, whether they’re from no credit check loans, personal installment loans, a credit card, etc. If you never pay the debt, and it gets sent to collections, the account will be noted on your score.

But since most payday and title loans aren’t reported to the credit bureaus in the first place, they can basically only hurt your credit score. They can’t ever help it.

(And if you think that’s the only issue with these predatory short-term loans, think again.)

What about payments that aren’t debt-related?

Sure, paying down personal loans and credit cards accounts for a lot of the payments you’re making each month. But it’s certainly not all of them.

So what about your payments on things like rent and utility bills? Are those reported to the credit bureaus?

According to Lesavich, the answer is mostly no:

“Most landlords for renters and service providers such as electric, cable and cell phones providers do not report payments to the credit reporting bureaus.”

“However, some landlords and service providers do such reporting.  So it is always wise to check and determine if your landlord or any of your service providers do report payment history.”

To learn more about how your credit score your utility payments are related, check out our blog post: How Bad Credit Can Affect Your Utilities.

How does your payment history impact in your score?

It’s a safe bet that making a payment late will negatively affect your credit score. But there’s no way to tell how bad it will affect it as there a lot of other factors at play.

According to Lesavich, the impact of a late payment on your score will depend on:

  • “Your current credit score
  • “Amount of days the payment was late
  • “How much money was owed for the payment
  • “Total number of times you made a late payment
  • “When the late payment occurred with respect to the when the credit score was calculated.”

One of the reasons it can be had to determine how much a late payment will affect your credit score is that you actually have multiple scores.

Each of the three major credit bureaus—Experian, TransUnion, and Equifax—maintains their own version of your credit report. Your exact score depends on which score is used to create your credit score.

And that’s not all. It can depend on which specific formula is used as well.

“It is important to note, says Lesavich, “that the credit reporting bureaus, etc. have all developed their own proprietary credit scoring models.  Such proprietary credit scoring models are never fully published or disclosed.”

“As a result, any discussion of credit scores is always a best guess estimate. It can be used to predict a reasonable range to approximate your credit score, but your own credit  score may vary with a late payment.”

Lesavich does, however, offer the following example of how a late payment could affect your score:

“A single 30-day late payment typically reduces a person’s credit score by 60-110 points (e.g., ranging from 60-80 points if your credit score is in the 600s, to about 80-110 points if your credit score is in the 700s, etc.).”

That’s a lot! But notice that he mentioned a payment that was 30 days late. Generally speaking, most lenders have a “grace period” after a due date is missed before they will report it.

So if you’ve missed a payment by a few days, go ahead and make that payment ASAP. It could mean a huge difference to your score.

“Late payment or missed payment information will typically remain on your credit report for seven years,” says Lesavich. Read more in our blog post How One Late Payment Can Affect Your Credit.

What should you do if you’ve made a late payment?

Lesavich has some sage words of advice regarding what to do if you’ve missed a payment:

“Everybody can and typically does face a life situation (e.g., illness, accident, birth, death, etc.) in which a late payment is made.

“If you have not made a late payment in the past, or have done so very infrequently, check with your credit card provider, bank or loan provider and explain your situation.  They may not report the late payment to the credit reporting bureaus.”

Remember, a credit score is dynamic. It can change, and it frequently does change as life circumstances change. If you make a late payment or miss a payment and it lowers your credit score, do not get discouraged.

Instead, view the situation from an empowered position, which gives you an opportunity to take control and initiate change.”

“Then, make a plan with action steps you can accomplish to change to your credit card purchasing and debt management practices by making all your payments on-time and not make any late payment or miss any payments.”

We couldn’t agree more. Check back with Know Your Credit Score next week when we’ll be writing about your Credit Mix!

Check out the rest of our Know Your Credit Score blog series:

What kinds of questions do you have about your credit score? We want to hear from you! You can email us or you can find us on Facebook and Twitter

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Stephen Lesavich, PhD, JD, (@SLesavich) is an attorney, credit card expert, award-winning and best-selling author of “The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards”.

The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.