How It’s Possible to Have a Perfect Payment History and Bad Credit

credit score factorsGrowing up you were taught that being financially responsible means paying your bills on time. This is certainly a good rule to live by, but there’s much more to being financially responsible — at least in the eyes of creditors. That’s why you can have a perfect payment history and still have a bad credit score.

The reason is because a good payment history is only a portion of what affects your credit score and as you already know, a good credit score is essential to your financial well-being.

The Credit Score Factors

What does a perfect credit score look like? The exact FICO formula has yet to be cracked, however, a few credit score factors contribute to piecing together what is required to achieve a high credit score.

The Fair Issac credit score is formulated based on these five pieces of data: payment history, amounts owed, length of credit history, new credit and types of credit used.

As you can see, payment history, which includes paying bills and other debts in a timely manner, is only one of the five areas that plays into credit scores.

Each of the credit score factors are weighed differently, but what affects your credit score the most is collectively doing well in every category, not just focusing on just focusing on a single characteristic of your credit score.

Payment History 35%

If you’re paying your bills on time, then you’re certainly headed in the right direction. It’s extremely important to make your payments on time. Most creditors won’t report your late payment until it is 30 days past due, but there could be exceptions to this and it could get reported even if you are just a few days late.

Don’t chance it. Typically, late payments fall into one of these categories: 30, 60, 90 and over 120 days late. Late payments can hurt your credit score for years, so be sure to at least make the minimum payment on time each month.

Amounts Owed 30%

Racking up a large amount of debt can hurt you. Just because your credit card company gives you a $10,000 credit limit doesn’t mean you should use it.

A large portion of your FICO score is based on the amount of money you owe compared to the total amount of available credit you have. This is known as “utilization” and simply put it’s a ratio of your debt to credit limit.

For instance, a credit card that has a $10,000 credit limit and an $8,000 balance would have a utilization of 80 percent. This is too high and may adversely affect your credit score. You can quickly increase your credit score by paying off or paying down your credit cards.

Length of Credit History 15%

Like a fine wine that gets better with age, so does your credit score. The older your credit history the better, which is why credit score factors like having a long length of credit history often makes it hard for young adults to earn a good credit score.

New Credit 10%

If you have applied for credit and have been denied, then chances are your credit score is lower as a result.

Consistently applying for credit is a signal to creditors that you are a risky borrower. Every time you apply for a credit card, line of credit or other loan, an inquiry is made to your credit report and your score drops.

This is unavoidable so you should be cautious as to when you apply for new credit. For example, if you know you will be buying a car in the next few months then avoid applying for credit so your score is as high as possible when apply for your car loan. Sometimes there are advantages to applying for multiple lines of credit, like if you are looking for a good credit card offer, but be smart about it.

Types of Credit 10%

It’s not enough to just have credit, but you need to diversify and have different types of credit if you’re seeking a higher credit score.

For instance, credit cards, car loans, mortgages and consumer finance accounts are a few examples of the types of credit FICO will assess. Having a variety of debt shows you can manage different types of accounts responsibly. Those with a good credit score will usually have about six accounts that are being managed responsibly.

It’s very easy to get discouraged if your score isn’t as high as you want it to be. The good news is that by knowing what affects your credit score, you know how to improve it.

Start by setting a few short-term goals and be sure to check your score on a regular basis. There are many free ways to keep tabs on your score through credit monitoring services. Here are a few things to consider as you begin improving your credit score numbers:

  • An excellent credit score would most likely show no late payments for the last seven years.
  • For a revolving account (such as a credit card), excellent credit scores are typically associated with a utilization ratio of less than 10 percent.
  • For installment loans, those who have paid down at least 35 percent of the original balance tend to have high credit scores.
  • The highest credit scores usually have no more than two credit inquires over the last 24 months.

Ultimately, there is no magic formula or shortcut to boost your credit score to where you think it deserves to be. The thing to remember is that just because your credit score doesn’t necessarily reflect your good credit habits and timely payment history on paper, doesn’t mean that you’re not on the right path.

Again, staying on top of your payments is one of the most influential credit score factors in the calculation, so don’t let yourself get discouraged.


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  • Simmions

    My credit score is really bad. I don’t know if its from my student loans being deferred or medical bills. What are some ways I can boost it up and how long will it take? I have one credit card on there but it has been almost 7 years and about to fall off, should I begin to pay on it? Is obtaining a secured credit card beneficial to boosting my credit score?

    • diane

      don’t pay anything that is about to fall off. it will restart the clock for creditors to harass you. most likely it’s the bills and not the loan. call the medical places and see if you can negotiate a pay-off amt. the business ofc may offer you a smaller pay-off amt if you will pay it in full (say you owe $90 and they offer $50) if you can afford it, take it. others will be happy enough if you pay as little as $5 a month as this will show good faith, and pay as much as you can to the smallest bills first and when they are paid, use that money to make larger pymts to the next highest bill(s). make sure they reissue amended bills and take down names and dates and keep good records of payments/conversations. it will take as long as it takes to pay off the bills to see any boost in your score. unless the secured card is from your bank–and ask if they send your payment history to the “gatekeepers”, you are better off using cash, although i understand walmart has a store card that is good for helping building back your score. obviously, don’t run up what can’t be paid in full every month. frankly, paying off (current) credit cards (and not incurring more as you pay it dwn) are the best ways to go. every five dollars counts. pick up coins and save your change and at the end of the year you will be surprised how much it adds to. don’t put it into svgs (no interest earned) and pay down a bill (lots of interest charged).

  • Bill

    If you apply for new credit your credit score takes a hit regardless of whether or not you were approved or denied due to the “hard pull” on your credit report.

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