How Long Does Payment History Impact Your Score?

[heyryan]

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@Anonymous wrote:

So basically I'm wondering how long good and/or bad payment history stays on your credit report/credit score. If I have 10 years of perfect payment history on 10 cards I would have 1200 perfect payments. If I miss one the following month I would then have 1211/1212 payment history. Is that right? Or does the count reset after a missed payment? So if I miss one after 10 years I would then be 11/12 for that month and after two months 23/24?

Does this make sense? I've been cooped up in the house for days now riding out the hurricane and I'm going crazy. Just trying to put my time to good use and learn a thing or two about credit. 

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I had 2 late student loan payments that, when they dropped off after 7 years caused my score to jump 35 points or so. Went from ~740->~775

[Anonymous]

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@Anonymous wrote:

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 Another thing you may find interesting is that it doesn't matter much if someone has 2 late payments or 30 late payments on an otherwise identical profile.  Their scores would be similar.  Why?  Because you're basically looking at black or white here, which is a "dirty" file or a "clean" file [with respect to payment history].... if you're dirty you're dirty... so whether it's a couple of late payments or a high number of them, you're scored similarly.

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One last thing... what BBS is talking about is a bunch of late payments that are all of the same "severity."  Thus 3 vs. 30 late payments may be scored close to the same if the payments were all "Day 30" lates.  But if the severity were different then the scoring impact could be quite different.  Thus Bob and Fred could have exactly six lates each, but if Bob's were all Day 30 lates and Fred's were two Day 30, two Day 60, and two Day 90, Fred would get a much sharper penalty.

If ALK11 is still interested in chatting about this, I am curious whether these questions were asked purely out of theoretical curiosity (i.e. purely something to do while he's cooped up during Irma) or whether they are rooted in any way in his practical situation.  I.e. does he have derogs of his own -- and he's trying to figure out what kind of scoring impact they can have?  (E.g. does it make sense to try to get lots of other positive tradelines going that will counterbalance the negatives?)

BBS has a lot of experience with the practical problem of fixing derogs on a report, as does a whole team of people in our Rebuilding forum.  So if there are practical issues involved, then they may be able to help.

[Anonymous]

I see that Sarge and I were both thinking about the "severity" idea at the same time!

And nice that he also caught the important point about recency of lates, not just severity.

[Anonymous]

Purely out of curiosity. I haven't done anything since last Wednesday cause of Irma. Barely left the house lol I'm still pretty new to credit and just thought that if I had 30 cards the impact of missing one payment would be roughly 1/30th the impact of missing a payment if I had one card. That makes the most sense to me. But I guess that isn't how FICO works. I assumed that the lates were all the same (all 30 days or all 60 days). 

EDIT: But I am curious if I were to have a late payment. Would adding more tradelines and having them all be paid on time help in the late payment category of scoring? From everyone's responses so far I think no. 

[sarge12]

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@Anonymous wrote:

Purely out of curiosity. I haven't done anything since last Wednesday cause of Irma. Barely left the house lol I'm still pretty new to credit and just thought that if I had 30 cards the impact of missing one payment would be roughly 1/30th the impact of missing a payment if I had one card. That makes the most sense to me. But I guess that isn't how FICO works. I assumed that the lates were all the same (all 30 days or all 60 days). 

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No...being late can not be diluted by having a lot of cards. Utilization and % of cards carrying a balance can, but derogatory info can not. Having a 30 day late is not as severe as 90 days late because one could possibly forget that they had not paid something by mistake for 1 month, where 90 days late is very indicative of being over extended.

[Thomas_Thumb]

Just to expand on the above comment:

Lates are looked at in absolute count terms, not what % of payments or % accounts show on time payments. Some 3rd party reporting metrics may show a % of ontime payments but, that is not relevent to scoring factors used in Fico algorithms. Additionally, it is primarily count greater than zero that matters for severe lates (90 day lates and greater). For example, if you have three 90 day lates and two are removed, your score likely won't increase much. However, when the last 90 day late is removed, score should increase substantially.

Lates categorized as 30 day lates generally stop negatively impacting score after 2 years as long as no new 30 day lates are added. The 90 day lates maintain impact for 7 years.

[sarge12]

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@Anonymous wrote:

Purely out of curiosity. I haven't done anything since last Wednesday cause of Irma. Barely left the house lol I'm still pretty new to credit and just thought that if I had 30 cards the impact of missing one payment would be roughly 1/30th the impact of missing a payment if I had one card. That makes the most sense to me. But I guess that isn't how FICO works. I assumed that the lates were all the same (all 30 days or all 60 days). 

EDIT: But I am curious if I were to have a late payment. Would adding more tradelines and having them all be paid on time help in the late payment category of scoring? From everyone's responses so far I think no. 

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If you have not done this already...click on the "learn about scores" section in the headers and read all sub-sections!!!

[Anonymous]

The questions you have been raising are good ones, ALK11.  Other folks ask them from time to time.  Typically they are as Sarge says trying to find a way to "dilute" their badness.

I will step slightly away from the orthodox line you are being given right now.  The general consensus is exactly what you are hearing from Sarge and BBS.  I'll give you an example to make it crystal clear.  Bob has exactly one account on his report: an open credit card.  Fred has 12 accounts on his report (all of them open).  Aside from this, their other scoring factors are basically the same.  They also have no derogs of any kind.  All of their accounts have been open around the same length of time (about 9 years).

Then each of them get exactly one Day 30 late.  The orthodox consensus (which you have heard from the other folks on the thread) is that the penalty will be the same.  The fact that Fred has exhibited flawless payments on his 11 other accounts will not help him compared to Bob.  The fact that 100% of Bob's accounts now have a derog will not hurt him any more than it did Fred (who has < 9% of his accounts showing a derog).

That's the orthodox line.  And it may be true.  But I should point out that it appears to conflict with what FICO says about how this category works.  Here is some text from the LEARN ABOUT SCORES section of this site:

http://www.myfico.com/credit-education/credit-payment-history/

A few late payments are not an automatic "score-killer." An overall good credit history can outweigh one or two instances of late credit card payments.

and then later it lists this as a mitigating factor for derogs:

How many accounts show no late payment
A good track record on most of your credit accounts will increase your FICO® Scores.

That language seems to suggest that Fred will get less of a penalty than did Bob, because almost none of Fred's accounts have derogs, whereas all of Bob's do.

Just because this language is in the Learn About Scores section doesn't mean that it is true.  Maybe the actual algorithm doesn't work that way.  But it is worth observing that the language has been vetted by FICO (they own this web site).  It's not language that some contributor here put up. 

Testing this kind of thing is really hard to do.  It's hard to find to profiles that are similar but clean, except for the fact that one has far fewer accounts, and then deliberately introduce Day 30 lates into them to see what happens.  Nobody wants to do that.

The closest thing we could do is to have one person who has Day 30 lates on all his 10+ accounts (no other derogs) and then watch them get removed one by one (e.g. via Goodwill letters) and confirm that they get no scoring benefit from any removal except the final removal.  There's some anecdotal evidence that this may happen but it would involve very close scrutiny from experienced testers with several profiles.

Anyway, I thought I'd throw that language out there just to let you know there are reasons to go one way or the other on this question.  I do not myself have an opinion.

The practical issue (as opposed to the fun theory question) is simple: don't ever be late on any account.  There are way to prevent yourself from ever being late.  15 years ago you had to remember to pay every single month.  That hasn't been true for a long time.  If a person has no lates now, he can prevent himself from ever being late in the future via Autopay and other similar techniques.  

The right practical attitude is to assume that BBS and Sarge are right -- that you won't get a lick of help from being good elsewhere.  By assuming that it will force you to implement strategies to never ever be late.

[sarge12]

CGID....All you stated is valid...If you have 7 years of perfect credit history, and you were late on a credit card, it would not be a score killer. My credt score would still be good though if it dropped 40 points, where if I had a score of say 720 due to a short credit history losing the same number of points would make a big difference. Adding a bunch of credit lines however does not a credit history make until the history part happens.

[Anonymous]

Hi Sarge.  You are right, but I don't think anyone is disputing that.  No one is disagreeing that people with short credit histories have lower scores than people with long ones (other things being equal).  And therefore, as a practicial matter, two people who get the same 40 point ding may be in very different shoes, because the one guy had a higher score to begin with (and therefore he may qualify for best rates even after the ding).

The question our OP was raising (and which I restated as a sharply defined example) is whether the ding itself would be the same.  Does Bob get the same penalty as Fred (the same drop in number of points) given that 100% of Bob's accounts now have lates whereas < 9% of Fred's now have lates?

The language I quoted from the Learn About Scores section seems to say that Bob will get a sharper penalty, since all of his accounts have derogs whereas most of Fred's do not.

Note also that in the example I gave (which aligned with the OP's example in his first post) both guys have the same length of credit history.  So we are not talking (in my example) about one guy with a short history and the other guy with a long one.  Both have a history of about nine years (and also a pretty similar AAoA).

Again, I don't have a dog in this race.  Just throwing out that the Learn About Scores language seems to suggest that FICO considers (as a penalty softener) whether most of your accounts are derog free.  If that is really true, then the answer to our OP's question is that yes it does matter (purely in terms of the hit you take) whether almost all your other accounts have never had a late.

But as I said in closing, I think trying to figure this out has no practical significance.  A theory question about CC utilization has practical significance because a person might really want to make decisions about how high to run his cards up.  This theory question about derogs does not have a similar practical analog, since the answer is that a person should always want ZERO lates regardless of how FICO works in its hidden algorithm.

Hope that clears up where I am coming from!  Best wishes...