Why Your Payment History Is the Secret to Good Credit

what is payment history

Most consumers know how important their credit score and credit reports are. Good credit is your key to affordable loans and credit. But building credit is impossible without on-time payment of bills, loans and credit card. our payment history. To have good credit, you’ll need to know what a payment history is and its importance.

“On-time payments are a huge aspect of having healthy credit,” says Joshua Eke, business development manager, Factor Funding Co. “Lenders will use this to determine whether or not you are a responsible borrower and evaluate your financial responsibility.”

What is payment history — and how does it affect credit?

To understand what payment history is and how it impacts your credit, it helps to understand how lenders use credit scores and reports.

“The purpose of credit scores is to rate how likely you are to default on a loan,” says Randall Yates, CEO of loan comparison site TheLendersNetwork.com. Your credit report is a collection of all of your behavior as a borrower or account holder.

Lenders, credit card companies, and other payees report your account information and payment behavior to the three major credit bureaus. This tracks when you make (or miss) payments on bills, loans or credit accounts. This information appears on credit reports and is used to calculate your credit score.

“Your payment history has the biggest impact on your credit score,” Yates says. For example, the majority of your FICO score (35 percent) is based on your payment history.

payment history on credit report

FICO score breakdown, myfico.com


Payment history is the single most important factor in calculating your credit score. A positive payment history won’t automatically give you a favorable score. But it’s almost impossible to build good credit without on-time payments.

How lenders view missed vs. on-time payments

In addition to its impact on your credit score, lenders will also review your payment history on your credit report. “On-time payments show that the borrower is responsible and will continue to pay their bill over time,” Eke says.

Any hiccups — late payments, missed payments, delinquencies or defaults — can derail your credit score, at least temporarily.

“Lenders will look at your credit history, and late or missed payments can be a huge red flag,” Eke adds. This can make it harder to qualify for loans – personal, business or a mortgage. If you are approved, you’re less likely to qualify for the lowest interest rates.

If you do have missed or late payments on your credit report, that will lower your credit score and be a mark against you. The cleaner your payment history, the better.

What happens if you miss a payment?

“A single 30-day late payment can drop one’s credit score by as much as 100 points,” Yates says. “Sixty-day and 90-day late payments can hurt your credit score even more and can take years to recover from.”

However, one or two missed payments won’t necessarily kill a good credit score. If you have an otherwise healthy credit and payment history, that will help offset the effects of a late or missed payment.

Lenders will also have different credit requirements and underwriting models. While some lenders might be willing to overlook one or two late payments, “many lenders will require you to have no missed payments in the last 12 months,” Yates says. Research different lenders’ credit standards to make sure you’re a good fit before sending in a credit application.

If you already have late payments on your credit report, it’s all the more important to make your payment as soon as possible and continue on-time payments. Your credit can recover within six to 12 months and will stop being a factor after three years, according to Yates.

What to do if you’re going to miss a payment

Maybe you missed a payment because you didn’t have enough money. Or maybe you accidentally missed the due date. Being proactive can help you work something out with your lender and minimize the negative impact of a late or missed payment on your credit.

First, you’ll want to know what your lender’s policy is on reporting late payments. “Most lenders won’t report late payments until it’s 30 days or more past due,” Eke says. “Some may also have data reporting models that will give you a pass on your first missed or late payment.”

If you can make your payment just a few days late, you might be able to curtail the worst consequences. You can also reach out to your lender to try to work out another solution or arrangements.

“If a borrower cannot afford to make the full payment, they should call the creditor and tell them they can’t pay it,” Yates says. “The creditor may be able to take a partial payment and let you catch up on the next payment. Or you can ask if they can change your billing date back a week or two to allow you extra time.”

Tips for a positive payment history on credit report

Whatever your payment history has been up to this point, you’ll need to make on-time payments in the future to improve or maintain your credit.

“The most common reason borrowers miss a payment is simply because they forget,” Yates says. Luckily, there are some easy tricks you can use to ensure you never forget a payment.

Eke suggests setting alarms or reminders on your phone to remind you of important bill due dates. Some banks, credit card issuers or other billers also have the option to enroll in text alerts or email notifications for upcoming payments.

Even better, set up automatic bill payments — some lenders will even give you an interest rate discount for auto-pay enrollment. “This is the single best thing you can do to avoid any late payments,” Yates says. “Setting up automatic payments either with your creditors, or using online bill pay with your bank will eliminate the chance you will forget again.”

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1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal LoansFixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 4.98% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 21, 2017 and are subject to change without notice. Not all rates and amounts available in all states. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 4.98% APR assumes current 1-month LIBOR rate of 1.34% plus 3.89% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Fixed interest rates range from 4.99% – 16.24% (4.99% – 16.24% APR) based on applicable terms. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
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4.98% - 14.24%1$5,000 - $100,000
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8.00% - 25.00%$5,000 - $35,000
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4.99% - 16.24%2$5,000 - $50,000Visit Citizens
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5.25% - 14.24%$2,000 - $50,000Visit Earnest
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