Credit Card Score / How to Improve Bad Credit? – Philip Tirone

Your credit card payment history is a big part of your credit card score and your overall credit score.

Your payment history on all your debt obligations (such as a mortgage, your credit cards, and your auto loan) accounts for 35 percent of your credit score, which makes it the most important factor in determining your credit score and the rates you will receive on loans and credit cards. If you pay your bills on time, you will be well on your way to a high credit score. If you pay your credit card bills late each month, you will have more than a few black marks on your credit report, and your score will drop accordingly.

Because the credit-scoring bureaus assume that current behavior is a better indicator of your credit-worthiness than behavior that happened a few years ago, your credit card payment history is weighed on a scale that considers recent activities more important than past activities. If you recently paid a credit card bill late, you will be docked more points than if the late payment happened a few years ago.

Likewise, if you have paid your bills on time for the past few years, your credit score will start to climb, even if your credit card payment history is tarnished in years past.

Why this distinction? Your current credit card payment history is a better indicator of whether you are currently experiencing a financial crisis. If you have a spotless credit record and then make a late payment on a credit card, the credit-scoring bureaus will see this change in behavior as an indicator that your financial situation has turned. As a result, your credit score will probably drop more than if you have always make late payments.

Let me be clear: if your credit card payment history shows consistent late payments, your credit score will most likely be lower than someone who makes just one late payment. However, the first late payment on an otherwise clean credit report will result in the most severe drop. Thereafter, you will be docked points, but the decline will be more gradual.

So what is considered “recent” behavior? Generally, the last six months of payment activity will have the greatest impact on your credit score; payments more than 24 months old will have less impact, and payments that occurred more than four years ago will have almost no impact.

A little-known fact about your credit card payment history: some credit cards offer a 30-day “grace period” before they report a late payment to the credit bureaus. If you pay your bill within this grace period, the late payment will not be reported to the credit bureaus, and your score will not suffer. That said, the credit card company will definitely charge you a late payment fee!