It must come as not a surprise that the way you pay your expenses– especially, the consistency with which you pay them– has a huge impact on your credit history. And while there are certainly other elements that affect your credit rating, your payment history is the most influential aspect of all.
The bottom line is that if you wish to earn and keep solid FICO and VantageScore credit report, you’ve got to pay your expenses on time, all the time, every time.
If you’re already facing credit issues due to less-than-stellar payment history, all isn’t lost. You can definitely begin making favorable changes to rebuild your credit for the future– and the very first step you need to take is discovering more about how to master the most crucial aspect in your credit rating.
Just How Much Does Payment History Matter?
No matter who is pulling your credit report, and no matter which credit rating model or brand name is being used, there is nothing on your credit reports that holds more weight than the existence –– or do not have –– of negative details.
If you’re bad at making your payments on time, you run the risk of losing more than a 3rd of the points that comprise your FICO and VantageScore credit rating.
Here’s how it works: When a credit rating design assesses the payment history on your credit reports, the model is basically trying to find blemishes on your report. If certain negative information is present on your credit reports, you’ll make fewer points (and consequently a lower credit rating) than you would have made had that unfavorable info not existed.
Which Information Hurts Your Rating?
Here are a few of the bad credit report items– aka credit warnings– that scoring designs will try to find when calculating your credit rating:
- Late payments: This consists of the seriousness, frequency, and recency of any late payments. In the majority of scoring systems 30- and 60-day delinquencies are thought about “minor,” and anything 90 days overdue or worse is thought about “significant.”
- Charge offs: A charge off happens when you default on an account and it is deemed to be uncollectable.
- Collections: A collection happens when a defaulted or overdue account is contracted out to a financial obligation collector.
- Public records: There are 3 public records that can appear on a credit report; tax liens, bankruptcies, and judgments. They are all thought about to be negative.
Just How Much Will An Unfavorable Payment History Hurt You?
Similar to many credit history questions, the response is “it depends.” In some cases, even one late payment will cause a considerably lower credit score. Other times, even a significant bad entry will have no quantifiable effect on a score.
For example, someone who has ideal credit and a score of 820 could see their score plummet if a brand-new collection hits their credit reports. However, someone who currently has 10 collections likely will not see their score change at all if collection number 11 hits their credit reports.
There is no set worth to any derogatory entry. Their value is always relative to the presence or absence of other comparable derogatory entries on a credit report. So, the answer to the concern “just how much?” differs from “not at all” to “a great deal”– and everything in between.
How Long Will An Unfavorable Payment History Hurt Your Credit?
If you’re trying to rebuild your credit, then, fortunately, is that credit mistakes or misfortunes do not simply continue to haunt your credit history permanently. Thanks to the Fair Credit Reporting Act (FCRA) there is a time frame that dictates the length of time most unfavorable info is legally permitted to stay on your credit reports.
For instance, collection accounts must be purged from your credit reports 7 years after the date of default on the original account. Late payments need to be eliminated seven years from the date of their event. Bankruptcies can stay for up to 10 years.
While this timespan might seem punitive and unreasonable, credit history systems are actually much more consumer friendly. As bad products age, they have a less and less negative influence on credit history. In truth, you could really have very solid credit ratings with negative info contaminating your credit reports, as long as the derogatory information is older and close to being purged by the credit reporting agencies.
Obviously, the simplest way to escape the damage of derogatory credit entries is to prevent them in the first location: Pay your expenses on time, whenever, time and again.
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