This topic is difficult to understand. All the information available indicates that payment history makes up 35% of your credit score, both in a good way and a bad way.
A couple of years ago a client came to me to get preapproved, at the time the credit and credit scores did not work. He had a car loan, that was not always paid on time. I had recommended that he apply for 3 credit cards, charge on them each month and pay off the balances every month and to make sure the auto loan is paid on time.
Fast forward, nearly 3 years I received another call from him wanting to get preapproved. I ran a new report that showed worse credit than before. He listened, somewhat and got 6 credit cards, all were either maxed out or over the credit limit.
Even though all the payments were made on time, his mid credit score was a 538. He was very upset, as he said that he followed my advice that did seem to work. I asked him if he remembered the part about paying off the balances each month? He said he didn’t.
Here is what goes on behind the scenes. If the balances are more that 30% of the high credit limit and even though the payments are made on time, his scores for each account will actually continue to drop. Other items that will effect scores:
- How much do you owe. This area again he had a real problem, as he is maxed out on his cards, this makes up 30%.
- How long have you had your credit, this makes up about 15% of your score.
- Your last application(s) for credit, about 10%
- Types of credit that you use, again about 10%.
