As we try to improve our credit score we should start with the biggest contributor – your payment history! This makes up 35% of your credit score. Your payment history is the way creditors assess if you are trustworthy. They are basically thinking ‘You promised you would pay the minimum balance every month – did you? Based on your past action can we trust you to pay back another loan?’
For each line of credit you will see a rating on your credit report. The best score is 1 (account paid as agreed) going to the worst 9 (account being charged off). Each of these assessments contributes to your over all credit score.
The magnitude of missing a payment cannot be over stated. By missing a payment (late by more than 30 days or the next bill cycle) your credit rating can drop more than 100 points. Which would cost you move you down a classification (excellent to good). Repairing that mistake will take time. Information can stay on your credit history for seven years.
To improve your payment history right now:
1. Set up automatic payments for all bills. It will save you time and prevent late payments
2. Pay off as many of your debts as you can in full each month. Ideally pay them all off but if not all pick a few.
3. Make a plan to pay off your outstanding debt. Pick the debt with the highest interest rate first.
Getting deeper into your payment history
What you should know? Your payment history is collected for every kind of credit you have except your mortgage. The list that includes is long:
– Credit cards
– Car loans
– Utility bills
– Student loans
– Parking tickets
– Cell phone bills
– In store financing
– Child support
– Lines of credit
– Library late fees
And against each line of credit the credit rating agency will evaluate your performance based on how reliable they thing you are. These include:
– Did you every bill on time?
– Did you pay the minimum balance? Did you pay in full?
– Did you go into collections or delinquency
– Have you gone on a payment plan?
– Has your account ever been charged off?