What is the importance of payment history in relation to credit scores?

Payment history is a crucial component of credit scores because it reflects an individual's reliability in repaying debts over time. Consistently making on-time payments demonstrates to lenders that the borrower is responsible and likely to repay future loans. In general, payment history accounts for approximately 35% of a typical FICO credit score, making it one of the most significant factors influencing overall creditworthiness. A strong payment history can enhance an individual’s chances of securing loans, credit cards, and favorable interest rates.

In contrast, the other options underscore less relevant aspects. The option suggesting that payment history has no effect on credit scores completely overlooks its fundamental role in metrics of creditworthiness. Claiming it represents only new credit inquiries misrepresents what payment history actually encapsulates, which is a record of all past payments rather than new applications. Lastly, mentioning that it only affects business credit scores fails to recognize that payment history is equally important for personal credit scores, impacting consumer borrowing potential.