How Credit Payment History Impacts Your Credit Score

In the personal finance space, we talk a lot about credit scores and credit reports and how influential they can be when it comes to your ability to borrow money now and in the future. With good reason.

Why Payment History Matters

Credit scores — which are like report cards of our adult spending habits — can help you borrow money at low rates if you have a higher score – or force you to pay sky-high APRs if your credit score is on the low side. With a range of 300 to 850, credit scores for Americans have risen in recent years with the average FICO score sitting at 714 in 2021 and 2022, notes Experian. Another popular scoring measurement, VantageScore — used by SavvyMoney — recorded an average credit score of 701 for adults with credit files in early 2023.

While none of us want the mistakes of our past to come back and bite us as we make plans for the future, that’s exactly what can happen when we don’t handle our debts responsibly. Unfortunately, when it comes to our credit scores — and how we’ve handled (or mishandled) money in the past — credit scoring bureaus have a long memory. In other words, being more than 30 days late even once will likely stay on your credit reports for up to seven years and could drop your score by up to 100 points. Read that again.

Why does that matter? That same 100 points shaved off your score for one misstep could end up costing you thousands over the life of a loan if you have to pay a higher rate.

How to Improve Your Score

There’s some good news here for anyone looking to boost – or even maintain — their credit score. When it comes to payment history – which is one of the main components of your overall credit score — you can turn the tide and begin moving things in the right direction. Here’s how:

• Pay your bills on time (or before the due date) every single time. You can make this easy by automating your monthly payments. If you already access your checking and savings accounts online or through an app, setting this up should be a snap. If you’re unsure of how to make this happen, call or stop by your local credit union or bank and ask a team member to walk you through it.
• Live below your means. In the most simple terms, don’t spend more than you can afford to pay off by the end of a billing cycle. Even more important, don’t spend more money than you bring in each month. Aim to spend less than you earn so you have money left over to…
• Build an emergency fund. Those who have a rainy-day account understand why this is so important to save for emergencies. When you have three to six months’ worth of living expenses set aside in a separate account, you won’t be so reliant on high-interest credit cards to get you out of a tight spot.
• Curb the urge for new cards. While introductory offers can be enticing, it’s a good idea to limit your credit cards to what you already have on hand, and only apply for new credit lines if you truly need it.
• Request free copies of your credit reports. Once in hand, scour the document for errors including everything from misspelled names to accounts you did not open. Then report any mistakes – large or small – to the three major reporting bureaus: Experian, Equifax and TransUnion, and to any companies who reported erroneous information. You can request one free report a year from each of the three agencies mentioned above by visiting AnnualCreditReport.com or by calling (877) 322-8228.

Those who use the SavvyMoney tool can access their credit score and other financial information anytime. Practice patience. Your credit score may not bounce back overnight, but by practicing good financial habits it should improve over time.