How to Use Your Payment History to Improve Your Credit Score

Your credit score is an important aspect of your financial foundation. Having great credit saves you money not only when you borrow but also when you apply for certain types of insurance. 

The most influential element of your credit score is your payment history. As a result, paying on time every month is the best thing you can do to establish excellent credit. Here’s everything you need to know.

What Is Payment History?

Your payment history is the aspect of your credit history that shows how you’ve handled your debt payments over time. When you apply for credit, the most important thing for a lender is that you have a history of paying your bills on time. If you don’t, you could be at a higher risk of defaulting on your new loan or credit card.

As a result, your payment history impacts your credit score more than any other factor. One late payment may not kill your score entirely, but it can lower your score significantly.

Types of Accounts Considered for Payment History

In general, only your debt accounts are included in your credit reports on a regular basis. That includes:

  • Credit cards
  • Retail credit cards
  • Personal loans
  • Auto loans
  • Student loans
  • Finance company accounts
  • Mortgage loans

Additionally, some other accounts may be reported if you don’t pay on time. For example, a utility company may report late payments if you’re delinquent on your phone, electricity or gas bill. Similarly, a bank or credit union may report a charged-off account if you had an overdraft of your balance and never paid it back. 

Which Accounts Don’t Affect Payment History

On a monthly basis, your utility payments aren’t reported to the credit bureaus like Experian, at least not by the utility companies themselves. Insurance premiums are also recurring payments that don’t get reported to the credit bureaus — this is because insurance premiums are generally prepaid, and your policy typically just cancels if you stop paying.

The same goes for streaming services and other subscriptions you might have. 

What Payment History Consists Of

According to FICO, there are seven components it considers when determining the health of your payment history:

  • Payment history on credit cards, retail cards, installment loans, mortgage loans and similar accounts.
  • How long your delinquent payments are overdue or have been past due.
  • How much you still owe on delinquent and collection accounts.
  • The number of past-due items on your credit reports.
  • Adverse items, such as bankruptcy or foreclosure.
  • The amount of time that’s passed since delinquencies, collection accounts and other negative items were added to your credit reports.
  • The number of accounts that you’re paying as originally agreed.

One thing to keep in mind is that an account isn’t considered delinquent for purposes of your credit score until 30 days have passed since the due date. As long as you get caught up by then, you’ll likely still have to pay a late fee, but your credit score won’t suffer.

If you do end up with a delinquency, bankruptcy, foreclosure or collection account, establishing a positive payment history going forward can help reduce the negative impact.

How Is Your Payment History Used?

Lenders use your payment history to help determine your overall creditworthiness. If you have some missed payments, a collection account or a more serious payment issue on your credit reports, it could make it difficult to get approved for a loan or a credit card.

Even if you do get approved, you may end up with a higher interest rate than what you’d qualify for with pristine payment history. 

Additionally, insurance carriers in the auto and homeowner’s insurance industries typically create a credit-based insurance score to help calculate your premiums. These scores can differ somewhat from a traditional credit score, but they also incorporate your payment history.

If you’ve missed payments in the past, it could cause your insurance rate to increase. 

How Payment History Affects Your Credit Scores

The two most popular credit scoring models are the FICO and VantageScore credit scores. Your FICO payment history makes up 35% of your score — though that’s not always an exact calculation — making it the most important factor.

As for your VantageScore, your payment history is only moderately influential behind your credit mix and experience and your total credit usage, balance and available credit.

That said, most creditors use your FICO credit score in lending decisions, so it’s more important to focus on that score as you work to build and maintain your credit history.

How Long Negative Payment Information Affects Your Credit Scores

Late payments remain on your credit reports for seven years after the first due date that you missed. Collection accounts also stay on your reports for seven years, but the clock is based on the first missed payment, not the date the account went into collections.

Foreclosures stay on your credit reports for seven years, but if you file bankruptcy, the public record can remain on your credit report for seven or 10 years, depending on the type of bankruptcy you file.

Again, remember that negative payment information does lose some of its influence on your credit score over time, especially if you maintain a positive payment history going forward.

Other Things That Affect Your Credit Scores

In addition to your payment history, the following factors also influence your credit score as calculated by FICO:

  • Amounts owed: This category considers your total debt owed, but it’s more impacted by your credit utilization rate, or the percentage of the available credit on your credit cards that you’re using. 
  • Length of credit history: This includes how long you’ve been using credit in general, as well as the average age of your accounts.
  • Credit mix: Lenders like to see that you can manage different types of credit well. For example, making payments on a credit card, an auto loan and a mortgage loan can help your credit score better than making payments on three credit cards.
  • New credit: Every time you apply for credit, the lender typically runs a credit check. This hard inquiry won’t impact your credit score much, if at all. But multiple hard inquiries in a short period could hurt your credit score.

How to Improve Your Payment History On Your Credit Report

There are a handful of ways you can improve your payment history, especially if you’ve made some missteps with payments in the past:

  • Get caught up on past-due payments: If you have any delinquent or collection accounts, make it a priority to get current on those accounts as quickly as possible.
  • Pay on time and in full: Always pay your monthly bills on time to avoid late payments hurting your credit score. Additionally, paying credit cards in full can help you avoid interest charges.
  • Use Experian Boost: As previously mentioned, Experian Boost makes it possible to incorporate positive payment history from your utility and phone accounts, as well as some streaming services. Use Experian Boost to see if it can help increase your FICO score.
  • Ask for help if you need it: If you think you might miss a payment because of some financial difficulties, contact your lender to see if you can get a forbearance or a modification to your payment terms to avoid missing the payment. These solutions may still impact your credit but not as much as a delinquency.

FAQs About Payment History and Credit Scores

As you work on building your payment history, you may have other questions about the process. Here are some of the most common questions about payment history, along with their answers.

How is payment history calculated for your credit report?

Your credit report maintains your payment history, but it doesn’t calculate your credit score. Instead, credit scoring companies like FICO use the information found on your credit reports to calculate your credit score. FICO looks at several factors, including past-due accounts, current accounts, how long it’s been since you missed a payment and more.

How much of your credit score is payment history?

According to FICO, your payment history makes up 35% of your score, but the actual calculation is based on a complex algorithm that encompasses your payment history and all the other factors that go into your score.

Why do creditors care about your payment history?

A creditor’s top priority when lending money is to get that money back on time. If you’ve missed payments in the past, it could be a sign that you’ll miss them again in the future.

What bills help build credit? 

For the most part, only debt payments will help you build your credit score. But with tools like Experian Boost, you can also add others into the mix, including utility accounts, phone bills and streaming service subscriptions.

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