Timely Payments Critical to Good Credit

Late Payments and Credit

Late Payments and Credit

There are several components to good credit.  Not surprising is the fact that making on time payments and late payments are among the most important components.  However, many that are tussling and toiling with a less than great credit rating overlook just how important on time payments are and how they mathematically factor into their credit scores.

How Much do Late Payments Matter?

Considering that payment history makes up 35% of one’s overall credit, it’s safe to say late payments are super important.  One of the main components of payment history is the timeliness of one’s payments.  The number of payments also factors in however the most important part of this piece of a credit score is on time payments.

On top of that, credit scores are VERY sensitive to the number of late payments made.  In fact, take a look at the percentages below to see how little one has to slip to hurt their credit score with regard to on time and late payments:

100% – Great
99% – Good
98% – Fair
97% – Poor
<97% – Very Poor

In most things in life 97% is great.  A 97% on an exam – pretty darn good.  Someone in the 97% percentile for height is probably a pro athlete! However, the guy that makes 97% of his payments on time is a Very Poor consumer according to how the credit agencies see it.

Improving Credit After Late Payments

The best thing and first thing to do is to not have any more late payments.  Since this part of a credit score is based on percentages it’s also helpful to add a new tradeline or 2.  This helps to outweigh the bad with the good.   Think about this – if you have 500 total payments reporting on your credit report and 20 late payments, your on time payment history is 96%.  If you don’t add any new tradelines and fast forward 50 payments from now you would now have 550 payments and 20 late (assuming no new lates).  Your on time payment percentage would still be 96%.   However, if you add 2 tradelines, in 1 year your percentage would bump up to 97%.  The other way to improve your on time payment history is time.  Once an account falls off your credit, so do the late payments associated with it.

by Jeremy House

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Jeremy is the Founder of The HOUSE Team and a Sr. Loan Officer/Branch Manager with PrimeLending. Over the past several years he has ranked in the top 1% of all loan officers nationwide and one of the top 200 loan officers in America. In the mortgage industry, the devil is in the details. Jeremy prides himself on being a student and an expert when it comes to everything mortgage related.

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