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What Effect Does Your Payment History Have on Your FICO Score?

Your FICO credit score may be based on a complex set of factors, but understanding how it works isn't as complicated as you may think. While FICO keeps its specific formulas a closely guarded secret, the basic rules used to determine your credit score are pretty straightforward.

Here's how credit cards and your payment history impact your FICO credit score.

Late payments can hurt your FICO credit score

Payment history is one of the biggest factors for your FICO score, accounting for roughly 35 percent of its value . A steady history of on-time payments will gradually raise your score, while just one single missed payment can cause it to drop drastically.

When is a late payment reported to a credit bureau?

A late payment can't be reported to one of the three credit bureaus (Equifax , Transunion , or Experian ) until it’s at least 30 days late. Once the first 30 days have passed, the credit bureaus will continue to receive notice of your late payment every 30 days until the late payment is paid or charged off by a creditor. The impact each 30 day window has on the score can vary, but generally the single largest drop happens within the first 30 days after a missed payment.

Can one late payment hurt me if I have a good FICO credit score?

The stakes are higher when you have a good FICO credit score, since each negative entry on your credit report will take off more points than it does for people with lower credit scores.

While those with an average score of around 680 could lose 60 to 80 points for paying a bill a month late, those with a score of 750 and above could lose up to 100 points for the same delinquency.

This means that the surest way to protect your FICO score is to make every credit card payment on time, every time.

Having strong debt to credit ratio can help your FICO Credit Score

Your payment history also has an important effect on your Debt to Credit Ratio, also known as the utilization ratio. This number describes your maximum credit in relation to your current debt. For example, if you have two credit cards, each with a $1,000 maximum, your maximum credit is $2,000. If you currently owe $100 on each card, your debt use is $200, making your debt to credit ratio 10 percent.

How much does my debt to credit ratio influence my FICO score?

The strength of your debt to credit ratio determines roughly 30 percent of your credit score. This means that your score could be harmed each month that you make a minimum or partial payment on a credit card bill, rather than paying off the full amount.

When it comes to your FICO credit score, the best practice is to pay off every credit bill in its entirety, so your debt to credit ratio at the end of each month is a perfect zero percent. Of course, this may not always be possible. If you already have credit card debt, learn how to improve your credit score using these effective debt repayment strategies.

Additional Reading

The New York Times: Free FICO Credit Scores: Options Grow for Consumers

The Washington Post: What's your credit score? Depends on what you're buying.

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