Why Your Payment History Carries Weight in the FICO Score Formula
Why Your Payment History Carries Weight in the FICO Score Formula
By William Lathrop
There are several different pieces of information that help to calculate your FICO score. All of it is found on your credit report. Several factors like how long is your credit history and how much do you owe carry large weights. So do the types of credit you use and how often you apply for new credit. The one piece or pieces of information that make up the largest portion of the FICO score formula is your payment history. Why it that?
First, you must know that 35% of your FICO score is made up by your payment history. And this is a record of all your accounts on your credit report and your payments to these accounts. Any late payments are seen as a negative item and are analyzed based on their severity, how recent and how often.
The reason why your payment history carries such a large weight is due to the relationship of default to late payments. There is a direct relation to someone who consistently pays late and a person who will default on a loan. Since the main function of a credit score is to give creditors a quick way to assess your risk, this fact makes your payment history carry the largest weight.
Also, the late payments taken into account by the FICO score formula are the last seven years on your credit report. Besides bankruptcies, this is one of the longest and lasting effects on your score. As time passes the benefit of the FICO score is that it gives more value to the recent transactions over the old ones. That is not to say they do not matter.
That being said; paying your bills on time is one of the best things you can do for your FICO score. You should try to never miss a payment. The only way to get one of the best score that will qualify you for the lowest interest rates is to be diligent with your payments. Develop a budget or a plan that you stick to every month to ensure you have everything paid and it is paid on time.
To read more about the FICO score calculation visit William’s website. There is more in-depth information about the FICO score formula
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