November 6th, 2012
Credit Report Card Break-Down: Percent of On-Time Payments
Last week we covered open credit card utilization. This week, we’re talking about another important factor of your credit score: your percentage of on-time payments.
This percentage shows lenders how often you pay your bills on time. A percentage even slightly less than 100 percent can mean trouble for your credit score.
How do on-time payments affect my credit?
Keeping up with your bill payments is the best way to build a positive credit history. Your credit will benefit greatly from a 100 percent on-time payment history.
On the other hand, missing just one payment will cause your average of on-time payments to drop, and it’s difficult to build back up. Let’s take a look at how different on-time payment percentages compare across different Credit Karma members.
This chart shows the distribution of on-time payment percentages across all Credit Karma members and assigns a letter grade in the Credit Report Card based on how you compare. Those Credit Karma members with 100 percent on-time payments (a perfect record) have an average credit score of 706, which is pretty good. However, those who have missed even just a few payments and end up with a 96 percent or less of on-time payments average out to a 571 credit score. In our current market, a consumer with a credit score of 571 would have a difficult time getting approved for more credit products.
So why do just one or two late payments affect your credit so significantly? Quite frankly, seeing how you’ve paid back your debts in the past best predicts how you’ll likely handle any future debts; it’s the best predictor that creditors have.
Additionally, making a late debt payment can affect your credit and finances in more severe ways. Read more about how late payments affect your credit score.
What can I do?
At this point, we’ve made it clear how important it is to keep making on-time payments for your debts. Now here are a few strategies for doing so:
- Automate your payments. For those bill payments that are the same from month to month, set up automatic payments. For your credit cards that you use regularly, set up automatic payments to cover at least your minimum payment.
- Try the goodwill approach. If you’ve missed a credit card payment recently but the rest of your history is pristine, try writing to your credit card company. Sometimes, you can get the delinquent payment stricken from your credit report by writing a good will adjustment letter. Ultimately, it’s up to your credit card company whether they decide to remove the derogatory mark, but it never hurts to ask. You can find a template of a goodwill adjustment letter here.
- Transfer your balances. If you’re already struggling to pay back credit card debt with high interest, consider getting a balance transfer credit card. The best balance transfer offers offer 0 percent APR for 12 to 18 months, allowing you the time to pay off your credit card debt without racking up additional interest. Just make sure to pay your transferred balance off completely before the intro period ends, or else you might be required to pay interest on the entire transfer after the fact.
Curious about balance transfer credit cards? Here are a few suggestions:
Stick around for more of the Credit Report Card Break-Down Series here on the Credit Karma Blog!
First post: Open Credit Card Utilization
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Another good practice is to simply: keep the number of accounts with balances to a minimum. It is far easier to keep a perfect payment record on a handful of accounts. Having fewer bill to pay each month greatly eases your administrative burden, and minimize the chances that you may overlook a payment or two.
How far back are late payments included in the calculation on CreditKarma? My late payment score is pretty low, but I’ve been on time for the last 2.5 years, and all the accounts I was late on have been paid off (car payment and second mortgage). They’re long paid off but still hurting my credit score.
The on-time payment percentage is calculated over seven years, but recent behavior is weighted more heavily. Remember that derogatory marks, including late payments, stay on your credit report for seven to ten years.
yes,now our shopping are almost all depend on pay by credit card,and now also has crdit card payment readers developing,I think credit card payment will be used more widly.
100% on time payments, then dropped to 40% when nothing has changed. and actually my electric bill and water bill are always a couple days late. my loan bill is always early or on time. what gives? it made my score go down from 688 to 630 and i am trying so hard to obtain a high credit score.
also, is it best to use the visa part of the debit card when purchasing anything, credit-wise?
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