What Piece of Information Is Most Important to Establish & Maintain Good Credit?

Consumers start credit files as soon as they apply for credit cards, retail accounts and loans. This information is picked up by credit bureaus, stored and sold to banks and other lenders. Many different factors go into a person's credit rating and influence whether credit applications are approved, according to FICO, the oldest and largest credit score company. Some of those factors are weighed more heavily than others.

Definition

Consumer credit histories are compiled in credit reports put together by three national bureaus, TransUnion, Experian and Equifax, according to the Federal Reserve Bank of San Francisco. They gather information on old and new loans and accounts, payment histories, court judgments on financial matters and other credit-related activities. Banks, loan companies and other financial institutions review these records when a person applies for a credit card, mortgage, loan or other account. Lenders are more likely to approve the request if the credit history is good.

Considerations

A consumer's payment history is the most important piece of information in the credit history, according to FICO. FICO calculates three-digit scores based on credit bureau records. Payment histories account for 35 percent of those scores. Lenders see payments as an indicator of the person's current financial status. On-time payments indicate someone who can handle their current obligations comfortably, while late or skipped payments are a warning sign.

Effects

Late or unmade payments are harmful on their own, but they often have ripple effects. Creditors often charge off accounts after payments are skipped for six months, according to financial columnist Liz Pulliam Weston. This adds another credit report blemish. Many car loan contracts let lenders repossess vehicles as soon as the loan goes into default, adding another negative entry, according to the Federal Trade Commission (FTC). Consumers who cannot handle their obligations may end up declaring bankruptcy when payments get too far behind.

Time Frame

Accounts that are paid as agreed show up on a consumer's credit reports indefinitely. Negative payment histories, and most other harmful information, stay on the records for seven years, according to the FTC. Bad entries stop affecting the credit rating when they are erased.

Warning

Late payments may erroneously show up on credit reports and affect the credit scores. Motley Fool finance site writer Dayana Yochim explains that there are errors in more than 80 percent of credit reports, and inaccurate payment information is the most common issue. The government-mandated annualcreditreport.com website provides no-cost credit reports for review every year. Consumers can dispute mistakes and force their removal if credit bureau investigations show the complaints are not valid.