Everyone wants a Great Credit Score. One of the keys to reaching that goal is making on time payments (learn how to improve credit after late payments below).
Just how important are on time payments? How do late payments mathematically factor into your credit scores?
How Much do Late Payments Hurt My Credit Score?
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 payments. The number of payments is another part of the payment history category however payment timeliness is the most significant when it comes to your credit score.
In addition, credit scores are VERY sensitive to the number of late payments made. In fact, check out the percentage table below. There is a very slim margin allowing for late payments before your credit score starts to suffer:
- 100% – Great
- 99% – Good
- 98% – Fair
- 97% – Poor
- <97% – Very Poor
With most things 97% is great. A 97% on an exam – pretty darn good. A person in the 97th percentile for height is probably a pro athlete! However, the consumer that makes only 97% of his payments on time is labeled Very Poor credit risk.
Improve Credit After Making Late Payments
The best and first thing to do is not have any more late payments. Since this part of a credit score is based on percentages adding a new trade-line or two helps improve on time payment percentages. New accounts help outweigh the bad with the good.
If you have 500 total payments and 20 of those are late payments, your on time payment history is 96%. If you don’t add any new trade-lines and fast forward 50 payments from now you would now have 550 payments and 20 late. Your on time payment percentage would still be 96%. However, adding two new trade-lines would bump your on-time payment ratio up to 97% in 1 year.
Another 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