Payment History - How it Affects Your Credit Score
What is a credit payment history?
Credit payment history is the track record of payments of your debts, including on-time, late, and even missed payments. Payment history is one of the most important factors that influence your credit score. It accounts for 35% of your credit score, followed by amounts owed (30%), length of credit history (15%), and new credit and credit mix, which each account for 10% of your score. Your payment history helps the lender to gauge your likelihood to repay the debt as a borrower. So, remember that any unpaid bills reflect on your payment history, which in turn may affect your credit rating.
How can I see my payment history?
Your lenders will report your monthly payments to the major credit bureaus including CIBIL, Equifax and Experian. What you need to do is to request a free copy of your credit report from any of these bureaus. For this, you would need to fill in the online request form to get access to your credit report. It’s recommended that once you get the report, review it thoroughly to see if there are any errors or discrepancies which might be lowering your credit score. If you find any negative information mentioned in your report, you can raise a dispute to resolve it. To be on the safer side, request the form within 30 days of getting your report.
How is your payment history determined?
The creditors report your monthly payments to the credit bureaus. Those reports include whether the payments were made on time or not. Each credit bureau has its own way of computing the credit score and the final score may vary from one bureau to another.
How is my payment history related to my credit score?
Credit bureaus use different parameters while calculating your credit score. Your creditors will report any late or missed payments made to the bureaus. This will get recorded in your repayment history and can hurt your overall score for several years.
How can late payment hurt my score?
Your Credit Report contains the details of your account information, including the status of your account. If you haven’t paid your outstanding credit card bills for over 180 days, the lender will write-off the amount and report the same to credit agencies. Also, you should be aware of your DPD or Days Past Due which indicates how well you have been servicing your loan or credit card payment each month. For example, if you haven't paid your outstanding credit card bills for over 90 days, your account will be classified as “Sub-Standard”, which may bring down your credit score. If your account stays as “Sub-Standard” for 12 months or more, it will be classified as “Doubtful”. This will damage your score further.
How do I keep my payment history clean?
Paying your outstanding dues on time will keep your payment history stain-free. If you are not good at remembering the due dates, you can set monthly reminders so that you don't miss making your payments or you can also sign up for autopay. Make sure that you have enough funds in your account that is linked to the autopay facility. Also, try to keep a tab on your monthly expenses. This will help you to manage your debts in a better way.
How long can negative payment information affect your credit score?
If you are struggling to pay your outstanding bills, 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.
Bottom Line:
Building a strong payment history, which can help in telling your creditors 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.
