The Number One Factor That Determines Your Credit Score

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Credit scores are those pesky things we all know we should check regularly but rarely do. Checking your credit score once a year is important for a number of reasons. Mainly, because it’s a great way to ensure you qualify for low-interest rate loans, which can save you money over time. There’s never a better time than the present to start making smart financial decisions.

Five Factors That Make Up Your Credit Score

  • Payment history
  • Amounts owed
  • Length of credit history
  • New credit
  • Credit mix

Of these five factors, the most important one is your payment history. Why? Because your payment history actually contributes 35% of your total credit score!

While that may seem like a lot, this is actually something that everyone — regardless of their current credit — can easily improve upon.

How to Improve Your Payment History

To improve your payment history, you need to know all the factors involved. Things like — your track record of paying bills on time, public records and collections notices (from bankruptcy, foreclosures, liens, and judgments) and any late or missed payments — all have an impact on your payment history.

Of course, each of these categories is affected by their own variables, like exactly how late you were on a payment and how recently it occurred.

For example; a 30 day late payment that just happened a month ago will have more weight than a 90 day late payment that happened two years ago.

Improving your payment history to help improve your credit score is simple. And while there is no “quick fix,” there are several strategies you can use to improve your payment history, thereby improving your credit score.

1. Pay your bills on time

There are lots of reasons many people don’t pay their bills on time; lack of organization, not budgeting money well, misplacing bills, and even procrastination. But you should do your best to prioritize paying your bills on time first and foremost.

Not only will a late payment cost you extra money in unwanted fees and late charges, it can have a negative effect on your credit score. Paying your bills on time is the best strategy to use, when trying to improve your credit score!

2. Enroll in automatic payments or online bill pay

If you know that accomplishing #1 will be difficult, sign up for online bill pay instead. Or even better, sign up for automatic payments to be withdrawn from your bank account. It’s faster, safer than mailing a check, more convenient, and you can set up reminders to help you remember to pay on time.

If you choose an automatic bill pay, the benefit is that you can “set it and forget it” since your payment will be automatically deducted from your account on the same date of every month.

3. Negotiate for a lower interest rate

If you are having trouble paying your bills on time, but want to improve your payment history, call your provider to negotiate a small discount or ask them to extend the payment date.

The best way to approach the situation and ensure your request gets heard is to be as nice as possible. If it doesn’t work the first time, keep asking for help until someone hears your case.

Final word

By keeping these tips in mind and making sure that you are consistent, you will be well on your way to establishing a great payment history and ultimately, a better credit score.

While your credit score may not be improved instantly, but with time and patience you will be on the road to establishing great credit and might actually look forward to sitting down and analyzing your credit score!


One Response

  1. TB at BlueCollarWorkman

    August 14, 2012 2:05 pm

    Well who knew? Not me! Happily, my wife and I pay on time every month, and in fact, we don’t use credit cards, so that part of things isn’t an issue (although we USED to have credit card problems!)


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