What’s in a Credit Score: Your Credit History


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At CreditKarma.com, we know credit scores. We know the ins and outs, what keeps them strong and what damages them. We’re sharing some of that knowledge with you CuteGeek readers so that you can take control of your credit life.

Last time, we discussed your credit utilization rate and how important it is in determining your credit score. Today, we’ll talk about how different aspects of your credit history factor into your credit score. The two main pieces in your credit history are your percentage of on-time payments and number or derogatory marks.

Percent of On-Time Payments

This is simply the number of on-time payments you’ve made divided by the number of payment cycles you’ve had on a given account (such as a credit card). For instance, if you’ve had one credit card for four years—or 48 months—and you’ve paid on-time all but twice, you have an on-time payment rate of 95.83%. In school, that’s a good grade, but when it comes to your credit score, just one missed or late payment could bring your score down 20 to 40 points, according to the Credit Simulator.

According to CreditKarma.com’s Credit Report Card, any rate below 96% constitutes a grade of “F” in this category. Don’t worry, a grade of “F” won’t necessarily ruin your credit score, but it will take continued on-time payments over time to make up for it.

For credit health: Your payment history accounts for 35% of your credit score. In order for lenders to find you creditworthy, they must trust that you’ll pay back your debts on time. That’s why your percentage of on-time payments is so important to your credit score. The best thing to do is to keep track of your credit card payment deadlines. Set up automatic payments or email alerts so that you never miss one. If you can’t pay off your entire balance each month, pay at least the minimum by the due date.

Derogatory Marks

Any negative actions against your credit, such as a late or missed payment, will cause a derogatory mark on your credit report. Other examples include accounts in collections, bankruptcies, foreclosures and tax liens. They’re bad news for your credit score because they’ll stay on your credit report for seven to ten years. Let’s look at how a few derogatory marks might impact your credit score:

  • Account in collections: For a “good” credit consumer with a 721, they’ll lose 45 points. The same goes for a “fair” credit consumer with a score of 660.
  • Tax lien: For a consumer with an “excellent” credit score of 765, their score will take a hit of nearly 100 points.
  • Foreclosure: For a “good” credit score of 712, you’ll stand to lose about 50 points. If you’re in the “excellent” score range with a 785, it’ll knock your score down about 75 points.
  • Bankruptcy: With a credit score in the “good” range of 680, a bankruptcy could drop it a whopping 150 points.

For credit health: Also included in that 35% portion of your credit score, derogatory marks like past-due payments and charge-offs should be avoided at all costs. The best way to avoid getting hit with a derogatory mark is to keep forming good financial habits: make and stick to a budget and build up an emergency fund. That way, if you find yourself facing a difficult debt repayment, you’ll have some cash in reserve to keep a derogatory mark at bay.

Bottom Line: Your credit history is one of the most indicative factors of your past credit health. In order to ensure healthy credit in your future, make sure you always make your payments on time and keep those derogatory marks at bay by making smart financial moves.

Credit Karma™ is a completely free credit management service that provides free credit scores, personalized savings recommendations, and financial education. We believe free access to one's credit score is a fundamental consumer right. Credit Karma helps more than 3 million consumers realize the everyday cost savings of having a good credit score. Visit us at www.creditkarma.com.