Payment History. The most important part of your credit report.
Most of us know that it is important to pay out bills. Additionally, most people also know that it is important to pay our bills on time. But sadly, a lot of Americans are behind on their bills. This can be for any one of a multitude of reasons, some of which I have discussed and others I will, no doubt, discuss in the future. But at the end of the day, if you do not pay your bills on time, you will have a hard time properly adulting. Also, being an adult will be WAY more stressful when you are behind on your bills.
This leads us to the main topic of this article: payment history.
(1) Why Your Payment History is SOOOO Important
Your payment history makes up the largest portion of your credit score (about 35%).
If you are trying to improve your credit score you NEED to start by examining your payment history. You have always paid your bills on time, great! If not so much, that is okay. Just read this article and get to a point where you are paying them on time.
One’s payment history being this important shouldn’t really come as a big surprise if you have a decent grasp on the purpose of a credit score (and all around financial responsibility). If you don’t, that is completely fine though. Let me enlighten you!
If you want to borrow money (for a house, credit card, car, personal loan, etc.) you will need a credit score. Simply put, the lower your credit score the more likely that you will be denied a loan. And if you do happen to get approved for a loan, you will likely have pretty crappy terms and be charged a high interest rate.
The number one thing that potential lenders look at when deciding to lend you money or not is your payment history. Likewise, the number one thing that the three credit reporting agencies look at when determining your credit score is also your payment history.
That makes sense, right? Think about it this way. If you are going to lend someone money, you would want to know that they have paid back money on time in the past to other people.
When you look at your credit report by going to this site or by using one of the free credit reporting apps you will see something that looks like this:
| Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | |
| 2021 | OK | OK | OK | |||||||||
| 2020 | OK | OK | OK | OK | OK | OK | OK | OK | OK | OK | OK | OK |
| 2019 | OK | OK | OK | OK | 30 | OK | OK | OK | 30 | OK | OK | OK |
| 2018 | OK | OK | OK | OK | OK | OK | OK | OK | OK | OK | OK | OK |
| 2017 | OK | OK | OK | OK | OK | 30 | 60 | 60 | 90 | 30 | OK | OK |
Paid on time: OK
30 days late: 30
60 days late: 60
90 days late: 90
You want to make sure that you minimize any time that you are late on a payment. Being 30 days late hurts but is not the end of the world. Being 60 days late is bad. And being 90 days late is really bad.
If you want to improve your credit score (or keep it high) make sure to never be late on your payments. If you are late, it will take 7 years for that late payment to fall off of your credit report. Ouch. But each month that goes by, that late payment will hurt your credit score a little less. For example, a 30-day late payment made three months ago is pretty painful to your credit score. But a 30-day late payment made five or six years ago doesn’t hurt that badly.
But let me also say this. If you have been late on payments before. Don’t beat yourself up. Seriously. It happens to nearly everyone (including myself). It’s just like if you are trying to lose weight but eat way too much Chinese food and drink way too much beer over the weekend (my struggle seemingly every weekend). We all do it. We all fall off the wagon sometimes. Just get back on, realize that you are human and you are allowed to make mistakes. And most importantly, forgive yourself.
(2) What Payments Are and Are Not Being Reported on Your Credit Report
Any debt that you have will most likely be reported on at least one of the credit reporting agencies. Some lenders will only report to one agency, sometimes they will report to two, and sometimes they will report to all three.
So if you have a car loan, mortgage, student loan, credit card, etc. they will all be reported to at least one credit reporting agency. The lender will report
- If you paid
- How much you paid
- If you were late
- Your outstanding balance
Generally, regular bills are not reported on your credit report. So when you pay your utility bill, your phone bill, your rent (not mortgage), car insurance, etc. it will not be reported.
The caveat to this is if you fall behind on any of those bills and they get sent to collections they WILL be reported. In fact, they will be reported as a collection account. Do your best to not let this happen. But if it does, just pay your collection accounts off as soon as you are current on your regular bills.
(3) Late Payment Credit Hack
Here is a helpful tip that most people don’t know.
If you are late on a payment, then it will not be reported as a late payment to the credit bureau(s) until it is 30 days late. You may be charged a late fee from your bank, but it will still be counted as an on-time payment to the credit bureau(s) as long as you are not more than 30 days late.
So for example, if you have a car payment due on the 5th of every month and you don’t pay it until the 22nd the bank will probably charge you a late fee (that sucks). But they will still report it as an on-time payment (that doesn’t suck) to the credit bureau(s) because it wasn’t a full 30 days late.
Don’t use this as an excuse to be late on payments though. You seriously don’t want to get into the habit of paying late fees on debts that you owe. It can get expensive quickly.
(4) Final Thoughts
Here is the bottom line. If you want to get ahead on your finances, you NEED to pay your bills and debts on time. This is the first step. If you are currently behind on bills, find a side hustle, break into your savings if you have some, or work some overtime to catch up.
You may not be where you want to be in your financial life today but treat your finances in a way that makes you thankful that you aren’t where you were yesterday.
You can do this!
Until next time!
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