How Does Payment History Affect Your Credit?

Your credit score is a snapshot of how you handle borrowed funds at a given time. Lenders usually pull it when you apply for a credit card or loan. But even though your financial health is represented by a single number in this scenario, several factors actually impact your score. One of the biggest contributors is your payment history.

Understanding your credit payment history is crucial, whether you are rebuilding credit or aiming to qualify for the best interest rates.

In This Article

What is payment history?

Your payment history is one data set tracked by credit bureaus and listed on your credit report. It reveals how many on-time payments you make on trade lines versus late payments.

The goal is to help lenders determine how you manage debt and how likely you are to repay a new credit line based on your past.

Payment history is a type of trended data that looks at a range of payments made over a set period. Often, lenders look at the last 24 months (about two years) of payment history, though the exact length of time may vary.

It’s also important to note that a late payment typically doesn’t include a bill you paid just a few days late.

Most creditors don’t report late payments until they’re 30 days overdue. However, once on your report, credit history items typically stay for up to seven years.

What components are included in your payment history?

Payment history focuses on both good and bad entries. Your credit report typically includes three categories that could apply to each open trade line (such as credit card, loan, or line of credit):

On-time payments: Each trade line appears on your credit report, listed in the account history as either on time or late every month.

Late payments: Any late payment reported to the credit bureaus is listed on your credit report in 30-day increments, such as 30 days, 60 days, 90 days, and so on. Each account also has a summary of its current status, such as “potentially negative items” or “in good standing.”

Public records and collections: In addition to recording late payments, your credit report discloses outstanding missed payments, credit lines sent to collections, and overdue child support payments. Other public records are also included, such as liens, foreclosures, bankruptcies, and civil suits or judgments.

The impact of payment history on your credit scores

According to FICO, payment history accounts for 35% of your credit score—the largest of five contributing factors.

VantageScore is another model that places an even greater emphasis on payment history. Depending on which version a lender uses, payment history accounts for 40% of your total credit score.

Positive payments can help increase your credit score over time. However, late payments can cause significant damage.

Even a single 30-day late payment can lead to a 100-point drop or more. It will stay on your report for seven years, although your score will begin to recover before then.

So, when repaying credit card debt and loans, it’s important to make those payments on time.

4 tips to improve your payment history

Routinely pay your bills on time

Typically, any type of financed credit is reported to the credit bureaus, both good and bad. This includes credit cards, student loans, car payments, and mortgages.

Make sure you know the due dates for each of these bills so you can pay them on time and build a positive history on your credit report.

Set up autopay

If you’re prone to forgetting about your bills, consider enrolling in autopay, which deducts each payment before it’s due. Only 17% of Americans prefer automatic payments, even though they can help stay on top of your bills.

The drawback is that you must manage your bank account to ensure your balance can cover the bills; otherwise, you could be charged a hefty overdraft fee for insufficient funds.

You can enroll in autopay directly through the lender or sign up for a bill pay service through your bank or credit union.

Catch up on missed payments

Outstanding late payments aren’t listed just once on your credit report. Instead, they’re listed incrementally at each 30-day mark, causing your credit score to drop each time.

That gives you a strong incentive to catch up on outstanding bills because it protects your score from decreasing even more.

Also, be wary of letting any accounts go into default. A loan is usually considered in default once payment is more than 90 days late, so it’s best to prioritize the most overdue items. Monitoring credit regularly can help you identify the most delinquent accounts.

Consider a debt consolidation loan

A debt consolidation loan helps to simplify your bills each month. Use the loan funds to pay off one or more balances on your credit cards or other loans, then pay just one fixed monthly payment.

You may be able to get a lower interest rate, plus you’ll reduce the number of bills you must keep track of.

Start paying attention to your payment history

Sometimes, small, consistent actions make the biggest difference in your financial health. Just like saving a few extra dollars each month adds up over time, staying on top of your bills improves your payment history—and your credit score.

Once you start incorporating this monthly practice into your financial routine, you’ll likely start to notice a difference in your credit score.

And that can result in huge savings on your interest rate the next time you apply for financing.

Written by Lauren Ward | Edited by Rose Wheeler

Lauren Ward is a personal finance writer who is passionate about helping people simplify their financial decisions. Her work has been featured in outlets such as USA Today Blueprint, CNN Underscored, and many more. She lives in Virginia with her husband and three children.