FICO's Biggest Factor Comprising 35% of the Entire Model

As promised, lets dig in to each of the five areas of a FICO score one by one. 

Part 1 - Payment History

Thirty-five percent (35%) of the points that make up your FICO credit scores is based on your payment history. A full one-third of your score is determined on this category alone. This means that if you have a poor payment history then it is unlikely that your scores will be high enough to ensure competitive interest rates and optimal terms when you apply for credit. Conversely, having a solid payment history is a great first step towards earning a solid FICO score.

Your current status is the rating of your accounts as of the last time they were reported to the credit reporting agencies by your creditors. The best “status” you can have on any account is “Paid As Agreed.” This means that the account is being paid according to the terms of the agreement you signed with the creditor. If your account is past due then your current status rating will reflect as such. The current status is generally displayed as a numeric value ranging from 1 to 9. If your account is paid as agreed then the rating will be a “1.” Essentially any rating other than a “1” is bad. And, as the numeric rating ascends from 2 through 9 it represents a worsening level of account delinquency.

1. Account paid as agreed

2. 1-30 days past due

3. 31-60 days past due

4. 61-90 days past due

5. Referred for collection

6. Unused

7. Account being paid by either a chapter 13 bankruptcy court or a non-profit financial             counselor.

8. Repossession 

9. Account has been charged off

What to do if you have made a late payment!As with all items on your credit reports there is a statute of limitations that governs the amount of time that late payments can continue to be reported. Prior late payments will remain on your credit report for no longer than seven years from the date they were reported. The credit reporting agencies supposedly program their systems to automatically remove prior late payments on or just prior to their seven-year anniversary. We do see frequently that this does not happen so it is important to stay on top of your credit file to ensure everything is reporting accurately.

If your bills are past due, the sooner you can pay the bill, the better. The damaging effect of a late payment on your credit score can increase the longer the delinquency. 

If you've made a late payment recently, you could attempt to do the following:

• Request removal of a late payment fee. If you're in otherwise good standing with your bank, consider getting in touch with them and requesting that the late fee be forgiven and removed. They are usually agreeable with this if you have a great history with them, but if it is more than once they will usually deny your request. They pseudo understand life and mistakes happen once. 
• Work to reset your penalty interest rate. If a late payment caused your interest rate to increase, your issuer is generally required to reset your interest rate back to the pre-penalty rate if you make six months of on-time payments, so get back on track and start making on-time payments. If you have had a late payment in the past, then you know the impact of this and creditors do this more frequently today than ever before to the tune of interest increasing to the high 20% range. Interest in this range will crush you if you need to carry a balance at any time. 
• Pay all accounts on time. If a late payment caused your credit score to drop, the best thing you can do is to continue on-time payments on all of your accounts. After 8+ months of consistent on-time payments, your credit score could slowly improve. An easy way to prevent late payments is to set up automatic payments and email or text reminders on your financial accounts. I know I am extreme but as soon as I get my statements I pay them so they never near the due date. This way you are certain to never have an issue because if you don't see the payment reflect pretty quickly, it still gives you time to sort out the issue. If you are paying bills automatically it is good to get into the habit of setting up the payment date at MINIMUM 7 days prior to the due date. Technology is a great thing but isn't flawless and the most common excuse we hear  from our clients is "the bill pay screwed up and it wasn't my fault". Unless you can beyond a shadow of a doubt prove this in written documentation you will earn the late payment award and live with it for years. Lastly, keep in mind that creditors are using what you do with other creditors to evaluate your level of risk to them in addition how you manage their account. Nowadays, you will see other creditors shrink credit lines and increase interest rates if they feel your risk profile increasing to hedge their exposure. 

In closing, people get overwhelmed and stressed about paying bills but it is really simple and easy. Pay bills well before the due date, and keep a close eye on the transaction going through. REMEMBER WHAT HAPPENS WITH YOUR CREDIT ONLY ONLY AFFECTS YOU AND NO ONE ELSE CARES ABOUT YOUR EXCUSES, SO BE RESPONSIBLE AND ACCOUNTABLE WITH IT! 99% OF THE TIME THERE WILL BE NO ONE ELSE TO BLAME BUT YOURSELF IF YOU USE IT IRRESPONSIBLY.