The most crucial factor on your credit history is your payment history on lines of credit, loans, and credit card accounts. The payment history is the most heavily weighted in calculating your credit score and includes whether you made the payments as agreed, didn’t make payments, and if you made late payments.
Paying off revolving credit accounts versus installments accounts (mortgage, student, and auto loans) will have the largest positive impact on your credit score, but being delinquent on installment debts will have the largest negative impact on your credit score. The higher your credit score the more damage a delinquency will have on your credit score.
If you fall behind on payments, some lenders will allow you to “rehabilitate” your account. They will agree to erase negative marks on your credit account if you make 12 months of on-time payments.
The Seven Worst Types of Payment Delinquencies.
1. Charge Off. An accounting term that means the creditor has given up on collecting the debt, so they’re writing off the debt to get the tax benefit.
2. Settlement. When you default on a debt and the creditor is willing to take less money than what was owed to settle the debt.
3. Foreclosure. When you default on a mortgage loan and the bank takes your house and evicts you.
4. Forfeiture of Deed. Same as a foreclosure, except you left the property without the lender having to evict you.
5. Short Sale. When the lender agrees to sell your house to someone else for less than what you owe because the price of the house has dropped to less than the loan amount.
6. Voluntary Repossessions. When you’ve defaulted or decide to no longer make payments on a car and you drive the car to the dealer and give it back. You avoid the repo man from having to come to your house to take possession of the car.
7. Involuntary Repossessions. The opposite of a Voluntary Repossession. You don’t turn in the car and the bank has to pay a repo man to come and take the car from you.