If you’re on a journey to improving your credit, establishing a good payment history can help you get on the right track. Your credit payment history, which FICO states determines 35 percent of your credit score, is the record you’ve established over time by either making on-time or late payments. In a nutshell, your payment history gives lenders and finance companies a snapshot of how likely you are to pay your bills.
To help you stay on top of your payments and improve your credit, here’s what you should know about your payment history.
What does my payment history consist of?
According to FICO, your payment history consists of the following account types:
- Credit cards (i.e. Visa, MasterCard, American Express, Discover, etc.)
- Retail accounts (credit from stores where you shop)
- Installment loans (loans that require you to make regular payments such as auto loans)
- Finance company accounts
- Mortgage loans
These items are listed on your credit report, along with how timely your payments are on each account. Public records and collection items are also on your credit report and contribute to your payment history. This can include bankruptcies, accounts in collections and/or lawsuits.
FICO states it considers the following factors if you have late or missed payments (also known as “delinquencies”) on your credit report:
- How late are the payments
- How much was owed
- Number of delinquencies
How can my payment history impact my credit score?
Having late or missed payments on your credit report will result in a negative payment history, which can hurt your credit score. Conversely, if you pay your bills on time, you will have a positive payment history. For example, if you received auto financing to purchase a vehicle and you make on-time car payments every month, doing so can help you build a positive payment history.
How can I build and maintain a positive payment history?
Paying your bills on time is key to building a positive payment history, which can ultimately improve your credit. Here are some ways you can stay on top of your monthly payments:
- Set a budget.
If you’re having trouble paying your bills on time, it could be because you don’t know where your money is coming from and/or going, which can result in not having a set budget. Setting a budget can help you plan how every dollar will be spent. Knowing exactly how your money is being spent should make it easier to adjust your spending, budget money for your monthly expenses and pay your bills on time.
- Track your spending.
Now that you’ve set your budget, it’s important to keep tabs on your spending throughout the month to ensure you’re staying within your spending limit. There are plenty of budgeting tools including Mint, Truebill and Goodbudget that can help you stay on track.
- Write out a list of your bills.
This is a good way to keep track of when your payments are due. If you find that your payment due dates are scheduled for different times over the month, maybe set up a few days a month to make payments so each bill is paid on time or a little bit earlier.
- Set aside time for making payments.
While setting up automatic bill payments may improve your ability to pay on time, you may not be able to or want to pay everything automatically. For bills that you pay manually, you can either: a) pay the bill on its exact due date or b) schedule a recurring time every month to review and pay your bills.
- Schedule payment reminders.
Setting bill payment reminders on your calendar or on your phone is another way you can keep track of your payments. Whether you make payments automatically or manually, reminders can help notify you that it’s time to make a payment or check if an automatic payment has been made.
Paying your bills on time is a major step in your journey to improving your credit. Since Credit Acceptance reports to the three major credit reporting bureaus, car buyers who get approved for financing through our auto finance program have the opportunity to improve their credit with on-time car payments. If you are someone with bad credit or no credit who needs credit approval for your next car purchase, a dealer enrolled in the Credit Acceptance program can help.
Simply fill out the Start Your Credit Approval form on our website to get started!
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