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From the Experts at Credit.com

Tips for Improving Your Credit: Your Payment History

by Gerri Detweiler

Tips for Improving Credit: Payment History

Your payment history, also known as payment performance, is the record you’ve established by either paying or not paying your bills on time. This history is recorded on your three credit reports which reside at the three main U.S credit reporting agencies: Equifax, TransUnion and Experian. Your credit reports will reflect your payment history on any credit account you’ve had in the past 7 to 10 years. This includes, but is not limited to, student loans, mortgages, bank and retail store credit cards and auto loans.

Find Out Where You Stand

You can check your credit each month using Credit.com’s free Credit Report Card. This completely free tool will break down your credit score into sections and give you a grade for each. You’ll see, for example, how your payment history, debt and other factors affect your score, and you’ll get recommendations for steps you may want to consider to address problems. In addition, you’ll also find credit offers from lenders who may be willing to offer you credit. Checking your own credit reports and scores does not affect your credit score in any way.

How do my credit reports know if I pay my bills on time or not?

Simply put, they don’t. But, your lenders know whether or not you pay them on time and they will certainly report your payment history to the credit reporting agencies…good or bad. This is a process called “lender reporting” whereby your lenders will send the three credit reporting agencies the current status of your account each month via an electronic tape. Once received by the credit reporting agencies this tape is loaded and then run onto their databases thus creating an updated record of your accounts month after month.

Subscriber Discover Card Citibank American Express
Account Number 30492383XXXX 980039485 102745623098
Account Type Revolving Installment Open
Credit Limit $20,000 $750,000 N/A
(High Credit)

$6,862 $37,000 $2,000
Minimum Monthly Payment (Terms) $19 $2,000 N/A
Date Opened April, 2002 August,
1998
July,
2004
Date of Status March, 2005 March, 2005 March, 2005
Last Payment Date February, 2005 February, 2005 February, 2005
Loan Type Credit Card, Terms REV Mortgage Credit Card, Terms OPEN
Current Status R1 I1 O1


The data that lenders report each month is generally based on the activity that occurred on that account during the previous billing period. As such, at any given time your credit reports will be displaying data that is 30-60 days old.

The following components of your credit report reflect your payment history:

Your Current Status

Your current status is the rating of your accounts as of the last time they were reported to the credit reporting agencies by your creditors. The best “status” you can have on any account is “Paid As Agreed.” This means that the account is being paid according to the terms of the agreement you signed with the creditor. If your account is past due then your current status rating will reflect as such. The current status is generally displayed as a numeric value ranging from 1 to 9. If your account is paid as agreed then the rating will be a “1.” Essentially any rating other than a “1” is bad. And, as the numeric rating ascends from 2 through 9 it represents a worsening level of account delinquency.

Numeric*
Status
Meaning
1 Account being paid as agreed
2 1 to 30 days past due
3 31 to 60 days past due
4 61-90 days past due
5 Referred for Collection
6 Unused
7 Account being paid by either a chapter 13 bankruptcy
court or a non-profit financial counselor
8 Repossession
9 Account has been charged off


* Your lenders are responsible for assigning and reporting the numeric status of an account. They each have policies that govern when they will start reporting a status other than 1. Some lenders will choose to be more consumer friendly and not report a status greater than 1 until the consumer becomes several months past due. Other lenders will report you with a past due status the day you become past due. It just depends on the lender’s reporting policies.

Prior Late Payments

Prior late payments are a record of any historical late payments made on an account. If, for example, you miss your auto loan payment this month you should expect to see record of this missed payment on your credit reports the next time your auto lender updates your account information with the three credit reporting agencies. If you subsequently make the payment and become “paid as agreed” on the account then your lender will change the account to show it as paid on time but with a prior late payment. If you miss a payment for two consecutive months then your lender will report two missed payments. This pattern will continue until the account is paid and marked as “current” by the lender.

As with all items on your credit reports there is a statute of limitations that governs the amount of time that late payments can continue to be reported. Prior late payments will remain on your credit report for no longer than seven years from the date they were reported. The credit reporting agencies program their systems to automatically remove prior late payments on or just prior to their seven-year anniversary. As such, there is no need for consumers to ask that they be removed.

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Narrative Codes

A little known area of concern that can have a huge impact to your credit is the plain English text that describes your accounts. These are called Narrative Codes. Narrative Codes are found alongside the account listings in your credit report. There are scores of Narrative Codes with these being some of the most common:

  • Home equity
  • Real estate mortgage
  • Line of Credit
  • Credit Card
  • Paid account / zero balance

Narrative Codes can either have a neutral or negative impact on your credit standing. The following are examples of Derogatory Narrative Codes that will have a profound negative impact on your credit reports and any credit scores that are generated from your reports.

  • Charge off
  • Paid Charge off
  • Repossession
  • Foreclosure Process Started
  • Redeemed Repossession
  • Settlement accepted on this account
  • Account included in wage earner plan
  • Account included in bankruptcy

Public Records or Collection Items

The public records as reported by the credit reporting agencies are bankruptcies, judgments and tax liens. Courthouses do not report to the credit bureaus in the same way a lender reports. Instead, the credit bureaus hire public record “vendors” to go to the courthouses and collect and verify public record information and then report it on your credit files. In the case of public records, none of them is good for your credit. Any public record that shows up on your credit file is considered negative and will impact your score significantly.

Collections are not public records but they are almost always listed in the same section of the credit report as public records. As such, that section is now almost always referred to as “Public Records or Collection Information.” Collections occur when your lenders choose to sell your past due accounts to a 3rd party company that specializes in collecting debts from consumers. Collection agencies get a fee from the lender based on a percentage of the amount they collect from you. Collections, like public records, will impact your score significantly.

The Impact to Your FICO® Credit Score

The FICO Credit Score is the standard credit scoring model used in today’s lending environment. Each of us has three different FICO scores, one generated from each of your three credit reports. It’s important to become familiar with the impact payment history has on your credit scores.

Thirty-five percent (35%) of the points that make up your FICO credit scores is based on your payment history. A full one-third of your score is determined on this category alone. This means that if you have a poor payment history then it is unlikely that your scores will be high enough to ensure competitive interest rates and optimal terms when you apply for credit. Conversely, having a solid payment history is a great first step towards earning a solid FICO score.

How Do You Ensure Earning the Maximum Points Available out of the Your Payment History Category?

In this case it’s quite simple. Your bills must always be paid on time and reflect a “paid as agreed” status. You also cannot have any prior late payments, any derogatory narrative codes, any public records or any collections. This sounds like a lot to keep track of but it’s really not difficult. It all starts with making your payments on time. If they’re on time then the slew of negative items mentioned above can never occur.


  • Crystal

    I have several paid as agreed accounts but it is showing as a negative, why is that? I have not been over 30 days late, I have been 2 weeks late but I called and made a payment arrangement.

    • http://www.credit.com/ Credit.com Credit Experts

      Crystal —
      Even “paid as agreed” counts as a negative because it’s a collections account.. You can read more here: Will Paying a Collection Account Hurt My Scores? Paying those accounts won’t help your scores, but it will keep those agencies from suing you and getting judgments, and a judgment hurts your score even more. The good news: The further those collections recede into the past, the less they will affect your scores. Your best move now is to pay every bill on time.

  • ki

    So here’s two questions
    1. as still have my credit card and I have one late payment but all the rest of my payments have been on time can I have them change anything to make it show I’m paying as agreed.
    2. my last car note I had three late payments but I have finish paying it off but they list the account as CLOSED which still shows as a negative can I do anything to have them change it.

    • http://www.Credit.com/ Gerri Detweiler

      If the late payments are accurate they will remain for seven years but as they get older they have less impact on your credit scores, provided everything else is paid on time. Are you caught up on that credit card now? If so then over time should see your scores improve as you continue to pay on time.

  • http://www.credit.com/ Credit.com Credit Experts

    It’s hard to tell exactly what’s going on but if you reach out to customer support (there’s a tab on the left) they will be happy to respond.

  • Danny

    I found that my 3 homes are no long showing on my credit reports. All were “paid as agreed” never late. One of them I did own for ashore time. Like 6 months. But still paid on time. The only proof I have currently is the print outs from my credit reports from each of the three who no longer are showing them. What can I do! This is really effecting my score and has been for a while!

    • http://www.Credit.com/ Gerri Detweiler

      How long ago did you pay them off? Paid off loans usually drop off credit reports after about 10 years. There’s no obligation for the lender to continue to report a paid off loan, however. Unless they do, you’re kind of stuck.

  • Vic

    I have 3 collections on my account and 2 of them are paid in full, the other I am paying off in full now. I live in NY and I keep reading, “Paid Collections remain on your credit file for 5 years from the last date of payment.” This confuses me. Is that 5 years from the date I paid the collection company in full or the last date the original creditor had a payment?
    If it is the later case, why do they keep telling me that it stays for 7 years no matter what? I am really lost and need help because none of the collectors want to even entertain a discussion. They just keep saying, “I’m not a credit analyst, but I know we follow the law.” What do I do????

    • http://www.Credit.com/ Gerri Detweiler

      The New York statute is indeed vague:

      ; (iv) accounts placed for collection or charged to profit and loss which antedate the report by more than seven years; or accounts placed for collection or charged to profit and loss, which have been paid and which antedate the report by more than five years – See more at: http://codes.lp.findlaw.com/nycode/GBS/25/380-j#sthash.XsrrYSQw.dpuf

      So I asked Jay S. Fleischman, a consumer protection attorney with offices in New York and Los Angeles if he could shed light on it. Here’s what he said:

      “According to Experian, ‘All delinquent accounts are deleted seven years from the original delinquency date, which is the date the account first became delinquent and was never again current.’

      In New York, paid collection accounts remain on your credit file for 5 years from the date of last payment.

      If your account goes delinquent and you do not make a payment ever again, the account is deleted from your credit file after seven years. If you are delinquent then pay the account off, the delinquency is changed to reflect that the debt has been paid – and the clock begins to run anew for the updated status.

      Think of it like a pair of red socks replaced by another pair of red socks. They both look the same, but are not actually the same.”

      Hope this is helpful.

  • leesa

    GMAC is reporting my account with status of pays 61-90 days past due and in the activity designator as account transferred or sold and is showing a zero balance. This account was included in my bankruptcy in 2009. I just realized this reporting due to the fact of purchasing a new home. I tried disputing and came back verified as accurate reporting and score dropped 27 points. I am asking if this reporting is legal and if my status should be included in bankruptcy?

    • http://www.Credit.com/ Gerri Detweiler

      I am sorry but I am confused. I just don’t understand the situation you are describing.

  • Anita Edwards

    How do I get my loan payments that are made on time reported because the loan company do no report that information

    • http://www.credit.com/ Credit.com Credit Experts

      That can be frustrating. You cannot force someone to report, though. (It’s one reason why, if you take out a credit-builder loan or a secured credit card that it’s essential to know that the issuer DOES report to credit bureaus.

  • Just me

    How soon after you make a charge on a credit card should you pay the balance. My plan is to charge items the pay off in full to establish good history and up limit but I don’t know if paying a couple days after the charge will be too soon.

    • http://www.credit.com/ Credit.com Credit Experts

      It won’t hurt to do it, but it won’t help, either (the exception to that would be if you are using 10% of your credit limit. In that case, paying before it’s due (and before you even get the bill) may help you. See: Will Paying Bills Before They Arrive Help My Credit?

  • Carter

    I overpaid large amounts on my loan for 3 consecutive months (not toward principle) so I haven’t had to pay a monthly payment in months. My credit report shows green, paid accordingly, but says $0 each month since I paid ahead. Is this bad or good? I have to start paying again and I am considering paying off my loan completely (4 years left in the contract) or should I do a large payment not toward principle? so that it reports monthly as “paid”?

    • http://www.credit.com/ Credit.com Credit Experts

      Paying ahead won’t help you credit wise, particularly if it’s not going toward principal (which would reduce your overall interest). If paying off your loan early won’t save you any money, there’s nothing to be gained from it creditwise, so it’s worth doing only if you fear you might otherwise pay late (which could hurt your credit).

  • Scott

    My mortgage company has frozen my equity line because my score has dropped by 10% (currently 710), but I can find no reason why my score would have changed. No late payments, no new debt, etc. How do I figure out the date my score dropped and why it dropped?

    • http://www.Credit.com/ Gerri Detweiler

      They sent you a notice outlining the reason for taking that action and giving you the score they used correct? Beyond that it’s going to be tough to nail down specifics. Have you tried to contact the lender to learn more?


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