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Friday, June 22, 2007


How to Use Your Payment History to Increase Your Credit Score

As I stated in a previous post, your Payment History is the most important factor when it comes to determining your credit score. Roughly 35% of the entire score is based on this one factor.

Well, it all makes perfect sense. If you pay your bills on time, you'll have a good credit score. If you don't, you won't. That's true, but there are ways to optimize your credit report to show your payment history in a positive light.

A credit report will show each of your current and delinquent credit accounts including the pay history for the last 24 months. This is usually represented by a number.
1= paid on time
2= 30 days late
3= 60 days late
4= 90 days late
9= account charged off as bad debt
X= unknown status

For every month that goes by, you get a new number. If you paid on time, you get a "1". Let's say you fell on bad times and went 30 days late on an account three months ago, but then caught back up. Your report will look vaguely like this:
ABC Credit Company 112111111111 111111111111

The left-most number represents your most recent payment. Your credit score punishes you for making a late payment, but the effect of that punishment wears down as time goes by. Every "1" you get from now on pushes that "2" farther and farther away to the right, making your credit look better and your score rise.

You may find that your report shows an account with many "X"'s, indicating that the status of your payment is unknown. If you believe without a doubt that those x's should be 1's, then it may be worth your while to dispute this information with the credit bureaus. They will force the creditor to come up with the accurate information or they will have to assume you were on time. This could result in an increase in your score.

There is another lesson that can be learned from this explanation of Payment History. If you have a bunch of collections and not much else, you'll quickly find yourself in the dumps as far as your score goes. This is simply because the bureau scores you based on your Payment History. If all your payment history is bad, than your score will be too.

What can you do about it? Put some darn 1's on your report! Open up a new credit account. It may take a few months to get a positive rating, but eventually the bureaus will recognize that you're not all bad. You've got some good credit too! Make sure to start off with a reputable Secured Credit Account at first to avoid a credit denial.

Well, there's some ammunition in the fight to improve your credit and get the loan approval you desire. The best ammunition in any fight is knowledge. I encourage you to read through the rest of my posts and search the internet for other free credit advice.

Best of luck!

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