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What Affects Your Credit Scores the Most?

Although you may be aware of your credit score and likely other scores, do you know what factors affect your scores the most when calculated?

Although your credit score may be based on a complex mathematical formula, the factors that determine your credit score are fairly straightforward.

Your payment history or how well you manage your credit accounts is the most important part of your credit score calculation.

Fico score is used by 90% of top lenders. The next is your amounts owed and more specifically, how much credit you use on your credit accounts.

Factors that affect your credit score

Payment history

Your FICO Score is 35% based on your payment history. The remaining 65% is made up of four other factors.

There are 28 different versions of FICO, meaning that you could have one score to decide whether your credit card application gets approved, another score to help with a mortgage application, and another score to apply for an auto loan. FICO considers payment history as the most important factor in calculating these scores.

Why is payment history so important?

Lenders want to avoid risk. Most of them will want 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 time.

What bills will affect my credit scores?

Your payment history can be affected by several types of bills. These include:

Credit cards

Mastercard, Visa, and American Express, as well as Discover cards

Shops offer retail credit cards

Installment loans

Auto loans or mortgages require regular payments over a fixed term.

Finance companies accounts

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

Other factors that may affect your payment history: Credit scores

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 have an impact on 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 score.

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

Late payments can remain on your credit report for up to seven years. Although late payments can affect your credit score, the effects on your score diminish over time.

However, not all late payments are shown in 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.

This is why: Credit card issuers won’t notify major credit bureaus (Experian TransUnion and Equifax) about late payments until the full billing cycle has ended, or 30 days.

If the payment is not received within 30 days, the situation will change. The effect of late payments on credit scores will depend on how long the account has been in default before you make payment. A payment that is 60 days late or more will cause more damage than one that is 30 days late, but less than one that is 90 days late.

How to improve your payment history

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

  • Pay past-due payments. Paying your bills on time will improve your credit score.
  • Set up automatic bill payments. You can reduce the chances of a bill going unpaid by putting your payments on autopilot.
  • Set up payment alerts. Many creditors allow you to set up reminders that will inform you when your next payment is due.

Other factors that affect your credit scores

Although payment history is the most important factor in calculating your FICO(r) Score, it is important to also be aware of these four factors:

  • 30 % of the score is your amount owed. This refers to your credit utilization ratio and how much debt you’re carrying. It could indicate that you are financially stressed and may default on your debt. Keep your credit utilization on each revolving account under 10% for the best score.
  • Credit history length (15%): A longer credit history can lead to a higher score.
  • Mixing credit types (10%): It can improve your credit score by managing different credit types, such as credit cards and mortgage loans.
  • New credit applications (10%): Opening multiple credit accounts in a short time frame can signal risky financial behavior. This can also lower your score by reducing the average age of your accounts.

The bottom line

Your FICO Score is based on your payment history. Paying all bills on time can help you build a credit history. Check your Experian credit score and review your Experian credit report regularly to ensure that your credit history, including your payment history, is in order.


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