Payment history: What it is, and why it matters to your credit

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In a Nutshell

Your payment history on your credit reports is just that: a history of your payments to lenders. It shows if you’ve paid your bills on time and it's an important part of your credit scores, so it’s good to know how your payment history is determined.
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You probably already know that paying bills on time can be key to avoiding late fees, higher interest charges or unpaid bills going to collections. But there’s another big reason to try to ensure you’re never late. And if it happens often, it can hurt your payment history a lot.

“Lenders want to know you have a history of honoring financial commitments,” says Nancy Bistritz-Balkan, vice president of consumer education and advocacy at Equifax, one of the three major credit bureaus. That’s why payment history is so crucial to your credit scores and why payments made more than 30 days late can have such a negative impact on your credit health.

Your FICO® and VantageScore® are two common credit scores lenders can use when looking to assess your financial track record. Both weigh payment history heavily among many factors affecting your credit scores. In fact, payment history accounts for about 35% of your FICO®  Score. Similarly, VantageScore Solutions considers your payment history “extremely influential.”

Your credit scores can make or break your chances of getting a cellphone contract, a mortgage, a credit card, a car loan or other kinds of credit, so that makes the payment history on your credit reports a pretty big deal.

How is your payment history determined?

Many creditors, vendors and service providers report your monthly payments to the three major consumer credit bureaus — Equifax, Experian and TransUnion. Those reports include whether the payments were on time.

“Payment history is built month by month,” a spokesperson for TransUnion told Credit Karma.

Many of the organizations you owe money to can report your payment history to one or more of the three main credit bureaus. Lenders who report the information include personal loan lenders, auto loan lenders, credit card companies, mortgage lenders and stores where you have a credit card or have financed purchases.

Information about unpaid medical bills can also be reported to credit bureaus, TransUnion explained, but utility companies don’t usually report payments (but you should still aim to pay your utility on time because in some cases a delinquent utility bill can make its way to your credit report if it goes to collections).

“A new account is typically reported to Equifax within 60 days,” Bistritz-Balkan explained. “After that, the creditor typically reports updates on a monthly basis. This ongoing reporting ultimately creates the consumer’s payment history.”

If you have filed for bankruptcy, had your wages garnished by court order or had a judgment against you in a lawsuit, it shows up in the public records/collections section of your credit reports too. So do foreclosures. That’s because the credit reporting agencies comb through public records, including court and property records, to get a complete picture of your financial situation.

How is your payment history used?

Credit bureaus put together the information they can about your history of payments, judgments, lawsuits and other information, then use the data to prepare your credit reports.

“That month-by-month rating appears in your account payment history profile on your credit report,” the TransUnion spokesperson said.

How long can negative payment info affect your credit health?

If you run into trouble managing your money, your payment history on your credit reports could be affected for a long time.

Late bill payments can stay on your report for up to seven years and accounts sent to collections also can stay for seven years. Information on judgments against you can be reported for seven years or until the legal window to bring a claim against you runs out — whichever is longer. Completed Chapter 13 bankruptcies typically stay on your reports for seven years, while Chapter 7 bankruptcies stay on your reports for 10 years. Foreclosures will remain on your reports for seven years.

Heads up: The more recent the late payment, the more it could hurt your credit

Even after the time limit is up, you aren’t necessarily in the clear. While the credit bureaus should remove this information on your credit reports past the seven- or 10-year mark, they may still keep it on file. And, if you apply for a job paying more than $75,000 a year or seek more than $150,000 worth of credit or life insurance, credit reporting agencies may disclose your past financial problems even if they’ve fallen off your credit reports.

How much can late payments hurt your credit scores?

The impact of a late payment on your credit scores can vary depending on factors including:

  • How severe it is
  • How recent it is
  • How frequently you’ve paid late

With a FICO® Score of 780 (on a scale of 300-850), being just 30 days late on a payment could drop your score to between 670 and 690, according to FICO. If your score was 680, having a payment reported as 30 days late could drop your score to between 600 and 620 according to FICO.

Bankruptcy could have an even bigger impact, according to FICO, potentially dropping a FICO® Score of 780 to between 540 and 560, while a 680 score could fall to between 530 and 550.

As you can see, the better the scores before a late payment or other adverse credit event, the more your scores could fall. According to FICO, that’s because borrowers with higher scores aren’t expected to pay late, whereas having lower scores means risky behavior is already factored in.

Bottom line: Protecting your payment history can protect your credit

Building a strong payment history, which can help tell lenders and others that you pay your bills on time, is likely to boost your credit. Late payments can hurt your payment history by pushing your credit scores down and making you look like a higher-risk borrower.

If you pay your bills on time, you can build a positive payment history on your credit reports and could increase your chances of getting credit when you need it.

About the author: Christy Rakoczy Bieber is a full-time personal finance and legal writer. She is a graduate of UCLA School of Law and the University of Rochester. Christy was previously a college teacher with experience writing textbo… Read more.