What Does "Pays As Agreed" Mean On a Credit Report?

In the United States, Equifax, Experian and TransUnion maintain records pertaining to your credit history. These bureaus rate your credit-management skills in a number of different ways, including keeping track of the number debts that you paid per the original terms of the loan agreement. Paying an account as agreed has a beneficial effect on your credit score.

Pays As Agreed

When you take out a loan or a credit card, you agree to make monthly payments toward the debt. These payments fall on the same day each month unless that day happens to fall on a weekend or federal holiday, in which case the due date usually moves to the next business day. If you make your payment on or before the due date, you pay as agreed. Additionally, most lenders provide you with a 10-day grace period after the due date within which you can make a payment without incurring a penalty fee. However, this grace period normally only applies to installment loans and not credit cards.

Closed Accounts

Credit bureaus maintain records of your currently active accounts as well as your past credit accounts. When you pay off a loan, that debt still appears on your credit report for up to seven years but shows as being inactive or closed. If you repaid the entire balance owed, then the closed account shows as having been "paid as agreed." If you enter into a debt settlement and repay less than you owe, the closed account shows as "settled." A settled account causes a drop in your credit score because it reflects the fact that you did not repay the loan in line with the terms of the original agreement.

Credit Score

Each credit bureau has its own scoring system, but at each firm, payment history accounts for about one-third of your overall credit rating. Payment history includes information related to paid as agreed accounts as well as late payments and loan defaults. Credit scores rely most heavily on recent credit activity rather than past events. Therefore, a settled account has less impact on your credit score as time begins to pass. Credit agencies use credit scores that range from 300 to 850. Anyone with a credit score below 620 has a subprime or below-average score. Lending options are few for subprime borrowers because lenders are wary of taking on high levels of risk. Lenders that do write subprime loans typically charge very high interest rates. The large monthly payments on these loans are unmanageable for some people, and this can increase the likelihood of borrower default.

Limited History

If you have recently established a credit history, when you apply for new credit, you may get declinations that state that you have "too few paid as agreed accounts." You may receive such a notification even if you have never missed a loan payment during your short credit history.

Lenders view new borrowers as unknown quantities and are reluctant to lend to people with limited credit history because these people have yet to fully repay a debt. The failure to "pay as agreed" when you are a new borrower simply means that you have not yet held a car loan, home loan or other fixed-term loan long enough to have paid it off and closed the account.