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Does your credit scores going down for a long time now, and you have no idea why is it so? If yes, then you must not be paying the needed attention to the factors of your credit report. Notably, there are certain factors that play a major role in determining your financial health as well as overall credit scores. While credit mix, credit age, amount of outstanding dues, and debt to income ratio are major contributor of the scores, it is the payment history that alone contributes maximum 35% of overall credit scores. It primarily indicates the lenders about your payment behavior of credit dues so far and in fact, is the deciding factor to approve the new loan application. Therefore, it is of utmost significance to pay attention to the repayment history if you really want your scores to be in good range.

What is a payment history?

So, before scratching your head about the term, let’s get an understanding starting from the basics. Basically, payment history is a factor that determines how regularly have you repaid all your loan EMIs and credit card dues. It is an indicator of how likely you’re to repay your debts and the degree of risk involved in sanctioning a new loan or credit. It is the most scoring model of your credit report and the most influential factor for your loan application’s approvals.

It may be noted that even a single missed or due payment could adversely hit your credit scores and could drag the scores by 10 to 15 points. Therefore, if you really want to work on your financial health, it is important to focus on timely payments of EMIs and credit card dues to avoid any red flags on the credit report.

Components of payment history:

Being the most influential factor of the credit health, there are certain components, which contribute largely to determine the payment history.
• Accounts owed – The first thing that your payment history includes is the type of accounts you owe such as personal loan, car loan, credit card, and mortgage loan. Lenders do check the number of active accounts to determine whether you can afford a new loan or credit. The lesser you owe, the easier it would be to ensure timely payments.
• Outstanding dues – The amount of outstanding dues is another major component of your credit history. Lenders are always keen to know the size of outstanding debt while considering your credit application. This is done so to determine the financial burden you have and to see if you’re eligible for another line of credit with no risk of default payments.
• Collection accounts – In case you have default payments for a few months in row, then the lender is likely to send your account to collection agency to recover the outstanding dues. The same is reflected in your credit report as well and thus, the amount due for collection also contributes to determine your repayment behavior.
• Public records – If your credit report has any red flags like foreclosure, defaulter, settlement, judgments, liens, and repossessions goes into your payment history and drags down your scores by 50 to 70 points or more. Also, any public record on your credit report puts you in a high risk range and thus, potential lenders avoid sanctioning new loans to such borrowers.

How to improve your credit history?

As the factor contributes 35% of the overall credit scores, it makes sense to put efforts to keep it in good shape. So, if you’re looking for some handy tips to improve credit history, here are some steps that you really need to implement with immediate effect.
• Pay dues on time – We are living in the age where it is not possible to avoid getting a loan or credit to manage the finances well. But, if you’re having any loan account or credit card, follow experts’ pro tip to make timely payments of the dues. It is the best possible way to not just keep your payment history on track, but also for maintaining the scores in excellent range. Hence, it’s best to get a loan or credit only when you really need it and can afford to make regular payments.
• Clear part dues – Though it is not at all advisable to skip payments, if it happens for any given reason, make sure to pay off the missed payments at the earliest. Remember, the longer you keep the dues unpaid, the longer it will remain on your credit report, and will be adversely hitting your scores too.
• Contact your lender – Just in case you’re not doing financially well for some time now and it is only getting difficult for you to make the outstanding due’s payment, make sure to contact your lender instead of defaulting the payments. If you have had a good record of payment and your problem seems genuine, the lender would be happy to extend any possible financial assistance.