What Makes Up Your Credit Scores? Part 1: Payment History

February 7, 2019
Shawn Lane
Consumer Credit Expert

Your credit scores are an important component of your financial wellbeing. Without solid credit scores, life can be a lot more difficult (not to mention more expensive) than it needs to be.

The good news is that if you learn what influences your credit scores, you’ll be better equipped to improve them. Stick with us through this five-part series, and you’ll be a credit score master before you know it.

The Basis of Your Credit Scores

If you apply for new credit, FICO is the brand of credit score used by 90% of the country’s biggest lenders. For this reason, we’ll focus on how your FICO Scores are calculated in this series.

Credit scores are calculated based on information contained in your credit reports – nothing more and nothing less. (The only exception to this rule is the new UltraFICO Score which will consider bank account data in addition to your credit reports.) So, generally if something isn’t included in your credit reports, it isn’t factored in your credit scores.

There are five different categories of information which FICO considers in your credit scores. In this series we’ll cover each of the five categories in detail. Earning better credit scores starts with understanding how credit scores work.

Payment History

“Payment History” is the most important credit report category where score calculation is concerned. FICO bases 35% of your credit scores on this information.

You probably won’t be surprised to learn that how you pay your bills impacts your credit scores more than anything else. After all, if you apply for a new loan the first thing a lender wants to know is how you handled your credit obligations in the past.

What Matters in the Payment History Category?

Here’s a look at some of the credit information which matters most within this credit score category.

  • The Presence (or Absence) of Late PaymentsIf you have late payments on your report, how late were they and how many times did it happen? How recently did those late payments occur?
  • The Presence (or Absence) of Bad InformationDo your reports have any bankruptcies? Do you have any collection accounts on your reports? Do your reports list any repossessions, foreclosures, or accounts settled for less than the full balance?

If your reports are free of negative information, you’ll earn the maximum number of points available in this category for your scorecard. If not, you’ll be awarded fewer points.

Action Items

Looking to improve the credit scores within the payment history category? These action items might help.

  1. Check your three credit reports frequently.

You can’t assume the information on your credit reports is accurate. You need to check for yourself. Credit reporting errors are common and can damage your scores when they happen.

Thankfully, you can access a free copy of your three credit reports online once every 12 months at AnnualCreditReport.com. You can also go to our website (frscredit.com/creditmonitoring) to order an up-to-date, 3 bureau, Identity IQ credit report (with scores) for just $1. If you’d like to review your reports with one of our certified credit professionals, you can also schedule a free credit analysis.

  1. Keep future payments on time.Although you may not be able to undo your past credit mistakes, it’s possible to be on-time with your payments moving forward. If overspending is a problem, following a personal budget can help. Automatic payment drafts may be something to consider as well, if forgetfulness has caused you to accidentally make late payments in the past.If you have existing late payments, the good news is that they will impact your scores less and less as they age. With payment history, how you have managed your payments lately is more important than how you managed payments five years ago.

There’s more to earning a good credit score than simply keeping your payments on time. Payment history only accounts for 35% of your overall credit score. This means nearly 2/3 of your credit scores have nothing to do with how you pay your bills.

Please join us again for parts 2-5 of our credit score series. You’ll learn about the other 65% of your credit scores and discover what it takes to earn the stellar credit you’ve been dreaming of having.

CLICK HERE or call 214-856-0068 to schedule a free credit analysis with a Financial Renovation Solutions team member.