Payment History - How it Affects Your Credit Score
If your credit score is 750 or above, banks won't hesitate to offer you a loan at competitive rates. So, how do you hit that mark? Ultimately, it all boils down to making timely payments. If your payment history is good, you don't have to worry much about getting any form of financing.
A high credit score shows that you are creditworthy and helps you get a loan easily in times of need. If you have a credit score above 750, it indicates that you are financially responsible and have never missed a payment deadline.
Your payment history is one of the significant parameters considered while calculating your credit score. Even a single missed payment will have an impact on your credit score.
What is a Credit Payment History?
In a nutshell, your payment history is a record of all your past and present payments made to your lenders. It includes all the data regarding your on-time, late, and missed payments. This helps the lender to gauge you as a borrower. Your payment history plays a key role in determining your overall credit score. So, remember that any unpaid bills reflect on your payment history, which in turn may affect your final score.
How can I see My Payment History?
All your monthly payments are reported by the lenders to major credit bureaus like TransUnion Credit Information Bureau (India) Limited or CIBIL Credit Rating Information Services of India Limited (CRISIL), and Equifax. To know your payment history in detail, you can raise a request for a copy of your credit report, with one of the bureaus.
Once you get the credit report, review it thoroughly to see if there are any discrepancies. If there's any inaccurate information recorded, you can request a dispute form from the agency. However, to be on the safer side, request the form within 30 days of getting your report.
How is my Payment History Recorded?
As mentioned earlier, your lenders will send a detailed summary of your monthly payments to the credit bureaus. This will also include your missed or late payments (if you have any). Note that each agency has a different way of computing the credit score and the final score may vary from bureau to bureau.
How is my Payment History Related to my Credit Score?
Credit agencies use various parameters while computing your score. This may include your payment history, any unsettled debts, the timeline of your credit history, and account inquiries, to name a few.
Your creditors will report any late payments or missed payments made to the bureaus. This will get recorded in your repayment history and can hurt your overall score for years. Also, if you have been a serial defaulter, expect your score to be on the lower side. Credit bureaus consider multiple factors before deciding on the final score. So, even you have paid your bills on time, but violated any of the other parameters, your final score may still take a hit.
Which Types of Accounts are Considered in Payment History?
There are multiple accounts contributing to your payment history. They are as follows:
- Credit Cards: Credit cards are one of the most common and widely used forms of credit. It also plays a crucial role in building your credit history. It is essential to pay your credit card bills on time to establish a strong payment record.
- Loans: If you have borrowed any loan, it is important that you repay it on time. Loans make up a significant portion of your payment history, and it is important to maintain it.
- Mortgages: If you have mortgaged something, it is important that you complete repayments within the said time frame. Doing so, will have a positive impact on your credit score.
- Retail Accounts: If you have a habit of making retail purchases on credit, it will also be considered in your payment history. Store-specific credit accounts also play a role in shaping your payment history.
- Public Records: If you have not paid tax as per the rule, it will also have a a negative effect on your credit history. Do note that situations like income tax notice, court judgements, or bankruptcies can harm your payment history.
How can Late Payment Hurt my Score?
Your Credit Information Report contains the details of your account information, including the status of your account. I you haven't paid your outstanding credit card bills for over 180 days, the lender will write-off the amount and report the same to credit agencies.
Also, you should be aware of your DPD or Days Past Due. For instance, if you haven't paid your unsettled bills for over 90 days, your account will be classified as "Sub-Standard", which may bring down your credit score quite a bit. If your account stays as "Sub-Standard" for 12 months or more, it will be classified as "Doubtful". This can damage your score further.
How do I keep my Payment History Clean?
Keep paying your dues on time to keep your payment history stain-free. You can also set monthly reminders, if that makes the job easier for you. It could happen that you forget the due date. In such cases, signing up for autopay may work. Just ensure that you have sufficient funds in the account that's linked to the autopay facility. Try to keep a tab on your expenses. This will help you manage your debts in a better way.
Practice paying on time so that your credit history doesn't take a hit. That way, you can put your name in the good books of financial institutions. Also, spend less using your credit cards, so that the debt accrued is on the lower side.
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FAQs On Credit Payment History
- What is a good payment history?
Timely payments will always have a positive impact on your payment history. If you have paid all your bills on time and much before the due date, you can expect a clean payment history, which in turn will help boost your credit score.
- How long does payment history affect credit score?
This depends on various factors, including the number of late payments, amount you owe, and how late your payments were (usually payments made after 90 days), among others. If you have been a serial defaulter, the black mark will reflect on your report for at least 7 years. In cases of bigger financial fiascos, such as bankruptcy, can leave negative impact on your score for at least 10 years.
- How can I write off late payments from my report?
You can write a goodwill letter to your creditor depending on the relationship you have. If your lender agrees to adjust, your report won't reflect the late payment. Alternatively, you can file a dispute in case you see any discrepancies in the payment data.
- What process should I follow to get my credit report?
You can write to any of the major credit bureaus requesting them to send your credit report.
- What should I do if I know that I am going to make late payments?
That's not a good situation to be in. However, to retain some of your credibility, you can inform your creditor about your financial crisis and give them a particular date within which you will pay the amount. Alternatively, you can make partial payments, only if your creditor allows you to do that. By doing this, you are taking responsibility of your situation, which in turn may work in favour of you.
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