Steve Bucci has been helping people decode and master personal finance issues for more than 20 years. He is the author of “Credit Management Kit For Dummies,” “Credit Repair Kit For Dummies,” “Barnes and Noble Debt Management,” co-author of “Managing Your Money All-In-One For Dummies” and “Debt Repair Kit For Dummies” (Australia). Steve is an experienced expert witness in identity theft, credit scoring and debt related cases. He has been a presenter at the FICO InterACT Global Conference, the Federal Reserve and the International Credit Symposium at Cambridge University in the UK.
Will my credit score rise after 12 months with no late payments?
There is no scoring bonus for making a one-year milestone of on-time payments. However, if all other factors that go into creating a credit score are positive, you should expect your score to reflect this.
Dear Keeping Score,
In February of 2019, it will be 12 months with no late payments. Will my score raise once it gets to February because of the length of no late payments, or will it just look good to lenders? -Joe
Congratulations on your upcoming anniversary! It’s nice to see someone taking my advice and paying their bills on time.
It is impossible to say definitively when or if your score will actually go up. There is no scoring bonus for making a one-year milestone. Each month of good credit reporting adds to your score but anniversaries, unlike in marriage or dating, don’t count. If all of the other factors that go into creating a credit score are positive, you should expect to see your score reflect this.
Because payment history makes up 35 percent of your overall score it may already be on the rise. However, a lot depends on where you started and any other actions you took while you were busy making sure you had no late payments. As your credit history matures, your score will plateau to the 700s or 800s to reflect the interaction of all of the scoring components. At that point, a good payment history will just help you maintain your score.
See related: 10 tips to improve your credit score in 2019
What are some other influencers on your score? Even though on-time payments make up a good bit of your score, credit utilization is right on those on-time payments’ heels. It accounts for 30 percent of your overall score. So, if you have credit cards that are above about 30 percent of their limits, the impact of those on-time payments – while certainly helpful – could be reduced by using too much of your credit limit.
For instance, if you have a $3,000 balance on a card with a credit limit of $6,000, you are at 50 percent utilization, and that is going to negatively affect your score. The lower you can keep your utilization, the better for your score.
Aside from scoring implications, it makes good financial sense to consider how much you are paying on your revolving accounts like credit cards. Let’s take that card we were just talking about with a current balance of $3,000. The minimum payment required would probably be about $90. Yes, paying the $90 before the due date assures that you have made your payment on time, but you are looking at dragging this out for 10 and a half years if you just make the minimum payment each month. And that assumes that you never charge another penny on that card!
Add to that the fact that you could pay very nearly the current balance in interest payments over that time period, depending on your interest rate. Check out our handy minimum payment calculator to plug in your own credit card information to see exactly where you stand on your cards.
Tip: How do multiple loan inquiries affect your ability to get a new credit card? Multiple auto, mortgage or student loan inquiries are typically counted as a single inquiry if they occur within a 45-day period, and they’re ignored if they happened within the past 30 days. But if your score is still below 700, you may not qualify for certain cards.
The other pieces of the credit scoring pie are credit history, credit mix and new accounts.
Credit history (15 percent): When we are talking about history here it is not about your payments, but the length of time you have had an account. A longer history of using credit demonstrates your ability to handle credit not just over a longer time period, but over a variety of life situations.
Credit mix (10 percent): This means the blend of accounts you have. A fistful of credit cards is not as important if you have no mortgages, car payments or installment accounts in your credit file. Having to pay a loan with a set payment rather than only a minimum can be more challenging in difficult times. Showing you can handle more than one type of payment will get you extra points.
New credit (10 percent): That brings us to new accounts and inquiries. While relatively minor with regard to your overall score, they do count. For example, if you apply for several new credit cards within a short period of time, you will have several hard inquiries on your credit report. History has shown that applying for new credit can be a sign of higher risk, at least until you show that you can handle the new credit successfully.
For now, I want to applaud you again for your year of on-time payments and I encourage you to keep it up.
Remember to keep track of your score!