Friday Jul 01, 2022

What is the most important factor in your credit score?

Although you may be aware of your credit score and likely other scores, do you know how these scores are calculated? Although your credit score may be based on a complex mathematical formula, the factors determining your credit score are fairly straightforward.

Your payment history or how well you manage your credit accounts is the most important part of your FICO (r) Score. This Score is used by 90% of top lenders. The next is your amounts owed, specifically how much credit you have available. These factors are less important than the three others. Here are the facts.

The most important factor in your credit score is payment history.

Your FICO (r) Score is 35% based on your payment history. The remaining 65% is made up of four elements included in your credit score calculation.

Remember that there can be up to 28 versions of FICO (r). This means you could have one Score that determines whether your credit card application gets approved, another score for a loan application, and another score for a mortgage request. FICO considers the most important factor in calculating these scores.

Why is payment history so important? Lenders want to avoid risk. It wants to see if you have made timely payments on your credit accounts, both current and past. FICO research has shown that payment history is the most important predictor of whether you’ll pay your debts on time. This is the number one predictor of your ability to pay off your debts on schedule, so it deserves a greater emphasis.

What bills affect my payment history?

Many bills can affect your payment history. These include:

  • Credit cards: Mastercard, Visa and American Express, as well as Discover cards
  • Shops offer retail credit cards
  • Instalment loans are auto loans or mortgages that require regular payments over a fixed term.
  • Finance companies offer accounts.

FICO also considers collection accounts and bankruptcies as part of their payment history. These accounts can hurt your Score.

Your payment history may also be affected by bills from phone, utility, cable TV, and streaming service providers. These accounts were not affected by your credit in the past. They would impact your credit history if they were sent directly to collections for non-payment. In that case, they will remain on your credit report for seven more years and could negatively affect your credit score.

These accounts can help you improve your credit score today via Experian. Boost(TM). + Experian Boost allows you to allow Experian secure access to your online payment history, including for phone, cable TV, and utility bills. Your Experian credit score will be boosted if you start to see on-time payments from authorized accounts on your Experian credit reports. Learn how paying credit accounts in full impacts your credit score.

What length of time do late payments stay on credit reports?

Late payments can remain on your credit report for up to seven-year years. These payments can affect your credit score but will fade over time.

However, not all late payments are shown on your payment history. You could face a late fee if you fail to make your credit card payments by the due date. However, it won’t affect your credit score.

What is the reason for this? Credit card issuers won’t notify major credit bureaus, Equifax, TransUnion, and Experian, about late payments until the full billing cycle has ended or 30 days.

If the payment is not received by 30 days, the situation will change. The effect on credit scores is determined by how long the account has been in default before making a payment. A payment that is 60 days late or more will cause more damage than one that is 30 days or more late, but it will do less damage than one that is 90 days late.

How to improve your payment history

You can improve your credit score and payment history by paying your bills on time. Also, make sure to budget enough money to pay them. The following are other recommendations:

  • Make sure you pay your past due bills on time.
  • Activate bill payments. By putting your payments on autopilot, you can reduce the chances of a bill going unpaid.
  • Create payment alerts. Many creditors allow you to create reminders to remind you when your next payments are due.

Other factors that impact your credit score

Although payment history is the most important factor in determining your FICO (r) Score, you must be aware of the following four factors:

The total amount owed (30%): Your credit utilization rate and the amount of debt you have account for 30% of your Score. It could indicate that you are financially stressed and may default on your debt. Keep your credit utilization on your revolving accounts under 10% for the Best Score.

Credit history length (15%): Generally, a longer credit history will result in a higher score.

A mix of Credit Types (10%): You can improve your credit score by managing credit types, such as credit cards and mortgage loans.

Open multiple credit accounts in a short period. This could indicate risky financial behaviour. This can also lower your Score by reducing the average age of your accounts.


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