Your Payment History Has a Huge Impact on Your Credit Score – Here's How to Improve It


Keeping an eye on your credit score may be more important than you think — even if you haven't had to use it yet. After all, you'll need good credit if you hope to take out a car loan, rent an apartment, or get a mortgage to buy your first home. Believe it or not, your credit score can also impact how much you'll pay for auto insurance — and whether you get hired for certain jobs.

If you hope to refinance your student loans with a private lender to score a super-low interest rate, you'll need good credit for that. Want to take out a business loan and follow your dreams as an entrepreneur? You'll need good credit for that, too.

The list of reasons to care about your credit score goes on and on, and the number of negative ways poor credit can impact your life is nearly endless, too. That's why, like it or not, we should all take steps to keep our credit scores in tip-top shape.

How your FICO score is determined

To accomplish this goal, however, it helps to know exactly where your credit score comes from. How can your entire credit history be represented by a three-digit number? And what factors can influence your score now and later on?

The most popular type of credit score is your FICO score, and the FICO corporation offers some pretty straightforward answers when it comes to the factors they consider.

The five factors that make up your FICO score include:

  • Payment history: 35%
  • Total amounts owed: 30%
  • Length of credit history: 15%
  • Credit mix: 10%
  • New credit: 10%

When you break down your FICO score this way, it's easy to see how you could use this information to your advantage. Overall, the best FICO scores go to those who learn to play by the rules with each of these factors and exhibit better credit behavior than most of their peers. 

How to create an excellent payment history

Based on the above percentages, you'll see one factor that should be especially easy to stay on top of. It may take time to pay down debt to decrease the amounts you owe, but you should be able to pay your bills early or on time, right?

Your payment history is one FICO score determinant that you have absolute control over, and this means you have the potential to make a big positive impact. To polish your payment history, make the following money moves. (See also: 8 Money Moves for the Newly Independent)

Set up all your credit cards on auto-pay

If you're someone who is prone to forgetting about your bills or paying them late, it can help to set all your bills up so the minimum payment is made on your behalf before your payment date. You can typically do this by connecting your credit card accounts to your bank account and selecting automatic payments. While you can still pay your cards off manually each month, setting up auto payments ensures you'll never be late if you simply forget.

This strategy can be tricky if you rarely keep extra money in your bank account, however, so you may want to consider saving up a "buffer" so any automatic payments made don't cause an overdraft.

Pay your credit card bills more than once each month

If you're not interested in setting up automatic payments on your credit cards, you can also consider paying them off more than once per month — and even once per week. Not only can paying your credit card bills more than once per month help you avoid late payments, but it might also help you stay on track with your budget and spending goals.

Here's a good example of how this might work: Imagine you budget $750 per month for groceries and gas. If you only checked in on your credit card bill at the end of your billing period, it might be easy to spend more than you budgeted in these categories and others. 

If you checked in on your credit card bill weekly and made payments each time, on the other hand, you'd have a better idea of how much you're spending throughout the month and be in the best position to avoid an ugly end-of-the-month surprise. 

Look for ways to automate your other bills

Also, remember that bills other than your credit card bills make up your payment history, and that your mortgage payment and car payment can also play a role. If you're able, setting up automatic payments for these bills can help you maintain a perfect payment history and avoid a ding on your credit score. 

If you have a credit card that earns rewards, setting up all your bills to be paid automatically with a credit card instead of by check or electronic funds transfer can boost your rewards haul each year as well. And provided you pay your balance in full each month, the rewards you earn can truly be "free."

Institute a weekly financial check-up

Finally, it always makes sense to plan a weekly meeting with your checkbook, your bills, and anyone you share your finances with. This is especially true if you're trying to live on a budget or spending plan since you'll need to check in with your spending fairly regularly to see where you're at.

To be more specific, it can be helpful to set aside some time every week to check and see which bills you have due, how much you've spent in regular categories, and how much of your budget is left for the month. Just remember that you're more likely to stick with it if you commit to a specific date and time for your meeting, such as Saturday mornings or Monday nights.

Final thoughts

Your payment history makes up the bulk of your FICO score, but it's also one area of your life where you have the utmost control. Any steps you can take to create a perfect payment history can only work to your advantage, so make sure to get started today. 

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