Your credit score affects more things than you’d imagine. It can impact the interest rate you get on a car loan, your mortgage rate, and auto insurance premium, among other things. Given how important it is to keep a good credit score, it is necessary to understand what impacts the score.
How Is Your Fico Credit Score Calculated?
FICO credit scores are three-digit numbers. They can lie between 300 and 850. The factors that influence it are your payment history (35%), total outstanding debts (30%), length of credit history (15%), credit mix (10%), and new credit (10%).
Why It’s Important to Build a Good Payment History
As indicated above, your payment history makes up 35% of your FICO credit score. It also has a significant impact on your VantageScore. Organizations that you owe money to usually report your payments to the credit bureaus, which can affect your credit score. What’s more, late bill payments and information about foreclosures can stay on your credit report for up to a total of seven years. The impact that a late payment can have on your credit score is based on factors like how recent the payment is, the severity, and how frequently it happens.
How to Build a Good Payment History
Set up auto payments: If you’ve missed bill payments in the past simply because you’ve forgotten to pay them, consider setting up auto payments.
Pay credit bills more than once every month: If you decide not to set up automatic payments, you may want to pay off your credit cards more than once each month. Doing this will help you stay on track with your payments.
Do a financial check-up every week: Consider setting aside some time every week to check your budget, bills, checkbook. If you notice any unpaid bills or any checks that need to be paid, you will be able to address it immediately.
The Bottom Line
Although your payment history has a big impact on your VantageScore and FICO credit score, it is also one aspect of your financial life that you can control. So, make sure to stay on top of your payments and build a great payment history.