Your ability to secure a loan, get a rental apartment, or even land a job can be affected by your credit score. Given the importance of your credit score, it’s important to understand how it works and what can influence it, including your payment history. So, do late payments affect your credit score? If so, how?
Key Points:
- Your payment history has one of the biggest impact on your credit scores among all other financial factors.
- A history of timely bill payments can help your score increase while missing payment due dates can do the opposite.
- Your credit score can affect your ability to secure a loan, rent a home, and even get a job.
- If your credit score is suffering, start rebuilding it today by making sure all your bills are paid on time and in full every billing cycle.
How Does Your Payment History Affect Your Credit Scores?
Your payment history is one of the most significant factors when calculating your credit score. On average, your payment history will account for 35% of your credit score calculation. The exact amount will depend on the credit scoring model used by your lender.
Your payment history includes information about how often you pay your bills on time and the frequency of late or missed payments on all your credit accounts. This includes your credit cards, personal loans, car loans, student loans, lines of credit, and mortgages.
If you have multiple missed payments, it may negatively impact your credit scores. Similarly, if you have a healthy payment history, it may positively impact your credit scores.
Importance Of Your Payment History
Lenders want to see that you will repay the money they lend you. If you have multiple missed or overdue payments on your report, lenders may consider you a high-risk and unreliable borrower. This, in turn, may reduce your chances of getting approved for a loan or credit product.
Do Late Payments Affect Your Credit Score?
Yes, as mentioned, since your payment history is often an important factor used to calculate your credit score, late payments may negatively affect your credit. Unfortunately, a late payment can remain on your account for up to seven years.
Keep in mind that late payments under 30 days may have no effect on your credit score as lenders typically report late payments to the credit bureau when they’re over 30 days due. If you’re able to make up for a late payment before this 30-day threshold, your credit score may not take a hit. However, payments that are overdue by more than 30 days are more likely to hurt your credit score.
Lenders, employers, landlords, and insurance companies sometimes also look at your credit before they make decisions. If you have bad credit, you can have notes added to your credit report to explain difficult circumstances.
When It Comes to Payment History, Which Accounts Matter?
Various accounts may be looked at when calculating your credit score, including both installment loans and revolving credit, such as the following:
- Personal loans
- Car loans
- Student loans
- Credit cards
Do Mortgage Payments Affect Payment History?
Mortgage accounts and payment history might show up on your credit report, but not always. Canada’s big five banks and some credit unions report to the credit bureaus but might only send data to one or the other (TransUnion or Equifax). Other mortgages, with smaller companies and private lenders, aren’t likely to show up on your report unless you are delinquent.
Do Rent Payments Affect Payment History?
If you’re renting, those payments won’t be reported to the credit bureaus at all. However, you can have your rent payments reported to the Equifax credit bureau if you use a rent reporting service like the Chexy or Landlord Credit Bureau.
Do Mobile Phone And Internet Bills Affect Payment History?
Mobile phone and internet providers may report your account payment history to the credit bureaus, even though they’re technically not considered credit accounts.
Do Utility Bills Affect Payment History?
Utility bills, such as gas, electricity, or water, are usually not noted on your credit report. However, if you have a history of late or missed payments, your utility provider may sell your debt to a collection agency. This will result in an R9 credit rating which is the worst credit rating.
What Other Factors Can Affect Your Credit Score?
While each credit scoring model may vary, there are five factors that are commonly used when calculating your credit scores. Aside from your payment history, these are the other four factors:
- Debt-To-Credit Ratio (~30%) – Lenders generally like to see a debt-to-credit ratio of 30% or lower. The higher your debt is, the greater borrowing risk you represent to lenders.
- Credit History (~15%) -The longer your accounts have been open, the better, especially if they are in good standing.
- Number Of Inquiries (~10%) – The number of times you apply for new credit can affect your credit score. Several hard inquiries in a row may impact your score negatively and can signal financial distress to lenders.
- Public Records (~10%) – Public records include information such as bankruptcies, consumer proposals, lawsuits, liens, and other derogatory remarks
What Are Credit Scores?
A credit score is a 3-digit number that represents your creditworthiness. Lenders and creditors report financial information to the credit bureaus in Canada, including Equifax and TransUnion. These bureaus then use the information in your credit report to calculate your credit score.
In Canada, credit scores range from 300 to 900, with scores below 560 being considered poor and scores above 660 being good.
| Note: Everyone has multiple credit scores in Canada. This is because each credit score provider has its own credit scoring model, so your score at Equifax and TransUnion may be different. Your credit scores also may be different because not all lenders and creditors report to both credit bureaus. As such, one credit bureau may have more information on you than the other. This discrepancy can affect the calculation of your credit scores. |
How To Check Your Credit?
There are two main credit bureaus (or consumer reporting agencies) in Canada; Equifax and TransUnion. You can check your credit with either credit bureaus or through third-party credit score providers.
| Cost | Credit Score | Credit Report | ||
 | Free | Yes | Yes | Visit Site |
 | Free | Yes | Yes | Visit Site |
 | Free | Yes | Yes | - |
Understanding The Codes On Your Credit Report
Each account on your report will display a letter and a number. The letter tells you the type of account, while the number (between 0 and 9) rates how well you are managing payments on that account:
| Installment | (I) | Accounts that receive an “I” are installment-style accounts that are paid off in predetermined fixed amounts. For example, a car loan. |
| Open | (O) | Accounts that receive an “O” are open, meaning you have an open credit account. An example is a credit card bill that you pay at the end of the month. |
| Revolving | (R) | Accounts that receive an “R” are considered revolving credit because your payments change based on how much of your limit you borrow. A credit card may receive an “R”. |
| Mortgage | (M) | Depending on the credit bureau you pull your report from, your mortgage may or may not show up. If it does, it may be represented by an “M” or potentially an “I” for installment. |
| 0 | For new accounts |
| 1 | Means you always pay within 30 days |
| 2 | Means you have paid 31 to 59 days late |
| 3 | Means you have paid 60 to 89 days late |
| 4 | Means you have paid 90 to119 days late |
| 5 | Means you have paid more than 120 days late |
| 6 | This number is not assigned a value |
| 7 | Means you are working on a consolidation, consumer proposal or debt management program |
| 8 | Means repossession |
| 9 | Mean your account is in collections or bankruptcy |
Why Is Your Credit Score Important?
Keeping your credit score as healthy as possible is important for a variety of reasons. Your credit score will have an effect on your ability to do any of the following:
- Get a loan – Whether you’re applying for a mortgage, car loan, or credit card, your credit score matters. While you may be able to obtain financing with bad credit by applying with an alternative lender, traditional lenders like banks typically require good credit scores before they approve loan applications.
- Finance a cell phone. If you’re looking to get a new mobile phone, you may choose to finance it if you can’t afford the hundreds of dollars they typically cost upfront. But oftentimes, cell phone providers may require good credit to allow clients to finance their cell phones.
- Get a job. Some employers may conduct a credit check when vetting prospective employees. So, if you’re applying for a job, you may need to have decent credit to increase your chances of getting hired.
- Get a rental unit. Landlords sometimes use credit scores as one way to help them assess prospective renters before they agree to sign a lease.
How To Improve Your Credit Score?
If you’re starting to build your credit score from scratch or your credit history shows problems with payments, there are ways you can build or repair your score with a positive payment history. It’s important to understand that building a healthy payment history takes time, so you won’t see improvements overnight.
Here are a few things to consider:
Pay Your Current Bills On Time
The most obvious thing you can do right now is start paying your existing bills on time. Again, payment history matters, so every timely bill payment you make can help your credit score start to inch back up again.
Keep Your Credit Utilization Ratio Low
Also referred to as your debt-to-credit ratio, your credit utilization ratio refers to the amount you spend on credit relative to your credit limit. If you currently have a credit card, keep your expenditures to no more than 30% of your credit card limit. The lower this ratio, the better for your score.
Take Out A Secured Credit Card
If you can’t get approved for a traditional credit card, you can consider a secured credit card. They act similarly, but you’ll need to provide a deposit and your credit limit will likely be smaller. You’ll have the opportunity to prove that you can use credit responsibly and your payment history may be reported to one or both credit bureaus, depending on the provider.
Come Up With A Realistic Budget
A comprehensive budget can help you keep your spending on track based on your income. With good budgeting and persistence, you can lower your debt balances, which may have a positive effect on your credit score. Consider also setting up automatic payments and notifications to ensure you make all of your payments on time.
Bottom Line
Several factors influence your credit score, but your payment history holds the most weight. Over time, making timely payments can help build a healthier payment history and increase your credit score. With good credit, you’ll have more financial opportunities available to you in the future.
