How Payment History Impacts Your Credit Score

How much attention do you give to your credit score? Do you evaluate all the components of the score? If you do, then you must have realized the importance of payment history. Payment history refers to the record of your payments. Do you pay late? Do you fail to pay? This information is helpful to all your future or prospective lenders. The lenders rely on this information to determine your risk as a borrower.

Payment history mostly focuses on your ability to pay loan and credit card balances on time.

Affects credit score negatively

Failure to pay any of your financial obligations on time can affect your credit score negatively. A history of timely payments presents you as a worthy borrower to lenders. A history of missed or late payments presents you as a risky person or business to lend to. Payment history is a complex component. It has several other components under it, which your prospective lenders take keen interest in while evaluating your credit worthiness.

Lenders consider your payment history regarding different types of accounts such as:

a) Credit cards

b) Retail accounts

c) Installment loans

d) Mortgages

It also looks for the presence of adverse public records, which may include delinquencies, collection items, suits and liens, judgments and bankruptcies. How long overdue are the delinquent payments? Lenders will always seek to find answers to this question by looking at your payment history. Lenders will also look at the amount of money that you still owe on the delinquent accounts.

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Payment history has a direct bearing on your credit history.

Affects your chances of getting loans

Credit history has a direct bearing on your ability to apply for and get loans.

Lenders assess your ability to repay the loan they give you on time. They don’t rely on your word alone. They look at records to determine whether you are too much of a risk to give loans to. By themselves, the records do not rule you out as a borrower. However, the information they contain makes you worth lending to or not. It’s upon the lenders to study your payment history and determine whether you are worth the risk.

Payment history exposes your consistency, or lack thereof.

Lenders need you to pay what you owe them consistently on time. They need a bit of predictability on your part, but more importantly, predictability of payment. Therefore, start showing more concern with your payment history. After all, it tells them the number of late

payments you have, how late you were to pay them, how much you owed, and the last time these problems occurred. Remember, your payment history makes up the largest factor on the FICO chart. One late payment one someone who has a 700-credit score could lower their score by 80-100 points.

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