How to Improve Your Credit Score, Starting With Your Payment History

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What do you have in common with over 220 million of your peers in the United States? You all have credit reports maintained by the three national credit reporting agencies: Experian, TransUnion and Equifax. Your credit reports contain a collection of information that reflects how well, or how poorly, you’ve paid your creditors. In short, they’re a report card of sorts that measure how responsible you are when it comes to using credit.

One of the things your credit report tracks is your payment history. A history of timely payments can help to build your score up while late payments can tear it down. If you’re focused on adding points to your score, the first step is understanding the importance of a positive payment track record.

How payment history affects your score

In a nutshell, your payment history is the single most influential component of your FICO and VantageScore credit scores. In terms of how much weight payment history carries, it accounts for 35 percent of your FICO score calculation. The VantageScore model ranks individual credit factors from lowest to highest based on how influential they are to your score, with payment history at the top of the list.

Payment history encompasses both positive and derogatory information regarding your credit accounts. On-time payments are reported to the credit bureaus along with late or missed payments. It’s the negative marks that you need to be most concerned with in terms of credit scoring.

Things that are considered “bad”, such as late payments, collections, tax liens, judgments, bankruptcies, repossessions, foreclosures, settlements, and charge offs all have a powerful impact on your score. If you have one of these items on your credit report or several of them, the odds of having a lower credit score are much higher compared to someone with a clean credit history.

To put it in perspective, a single late payment has the ability to reduce your score by anywhere from 40 to 100 points. The higher your score is at the time the late payment occurs, the bigger the reduction is likely to be.

Gauging the long-term impact

When a negative payment history is a barrier to achieving a good credit score, the question becomes how to deal with it. While that’s a simple enough proposition, the solution is a little more complicated.

Derogatory credit items are problematic because they can legally be reported by the credit bureaus for up to seven years. Certain items, such as a Chapter 7 bankruptcy filing, can linger on your credit for 10 years. Assuming any negative information contained in your credit report is accurate, the credit bureaus are under no obligation to remove them earlier than the law requires. That means you have to live with those black marks on your credit in the meantime.

There is something of a silver lining, however, in terms of how much of an impact negative items have on your score over time. Recent late payments or other derogatory information is the most damaging to your credit. The effect of negative payment history, on the other hand, begins to less as the information being reported ages.

How to Improve Credit History

When you’re facing payment history problems, your options for dealing with it are somewhat limited but there are things you can do to try and minimize the damage. First, you can contact the credit bureau that’s reporting the information to verify its accuracy.

The Fair Credit Reporting Act requires credit reporting agencies to investigate consumer disputes involving inaccurate or erroneous information. Disputes can be initiated online or in writing and the credit bureau has 30 days to verify the information. If it’s determined that the negative information was reported in error, it would have to be removed from your credit report.

Disputing derogatory credit items can be time-consuming but it can be beneficial to your score if you’re able to have negative information removed. Keep in mind, however, that without sufficient documentation to prove why the item you’re disputing is inaccurate, you may have a difficult time persuading the credit bureau to remove it.

The second avenue for rebounding from poor payment history is to commit to paying your credit accounts on time, every time going forward. This, however, is easier said than done because it requires rethinking the way you approach credit entirely. FICO published a study a few years ago that suggests most people who have poor credit will always have poor credit. If you were irresponsible with credit in the past, breaking the pattern is likely to be a challenge.

Recovery time

Reestablishing a positive payment history won’t happen overnight but seeing a change in your credit score can happen sooner than you think. If you’re making the effort to pay your obligations on time consistently and you’re not in danger of a serious financial slip-up, such as a foreclosure or repossession your credit will recover that much faster. If you can maintain good payment habits, you should see a considerable improvement within 36 months. Experiencing that boost can be just what you need to continue the journey towards 850.

John Ulzheimer
John Ulzheimer, Credit Expert for Credit Sesame, is a nationally recognized expert on credit reporting, credit scoring and identity theft. He is twice FCRA certified by the credit industry’s trade association and has been an expert witness in over 170 credit related cases to date. Since 2004 John has been interviewed and published over 3,000 times on the topics of personal finance and consumer credit.

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