Your credit history is about looking at how you managed your credits in the past. If you are in the market for new loans (mortgages, car loans, credit cards, etc.), and you may even look for rentals or find a job, your credit history can have a big impact. Find out more about what your credit history is, why your credit history is important, and how you can improve it.
What is your credit history?
Think of your credit history as a financial record of your credit activities. Among other financial information, these usually include: Pay your bills on time, or the number of credit cards and other loans you have, the type of credit you use, and the amount of debt. Usually late payments are reported 30 days later, which can cause, for example, fees with the card issuer, but may be delayed in unreported payments.
Your credit history is recorded in a document called a credit report. It provides information on how you use your credit account, such as your payment history and account balance. The report also provides identification information, details of the collections on records, and credit check information. Even child support and alimony payments are part of your credit history and can have a negative impact if you miss a deadline.
Credit History and Credit Score
Credit scores and credit history are related, but not the same. Credit scores are calculated based on an algorithm that includes credit history documented in the credit report. Three major credit bureaus – Equifax, Experian and Transunion – Credit reports are generated, but the same information is not always recorded in the same format.
Each station uses one or more scoring models (usually FICO or VantagesCore) to interpret the collected data and create a credit score. There are multiple versions of FICO and VantagesCore. FICO 8 is the most commonly used credit scoring model.
Information about your credit report (your credit history) will be a mathematical model that generates your credit score. This is usually a number between 300 and 850 that indicates the likelihood you will pay off your debt. Each credit scoring model has its own methods and criteria, so each credit score may differ. But each model is trying to do the same thing. It predicts your chances of repaying your debt, especially for the financial products you are applying to. Thus, responsible financial behaviors can be translated into a good score regardless of the model.
Using report card analogy, credit reports record how you did it on a report card that documents your credit history, or all assignments in the semester. Your credit score will be an overall letter grade, such as A+ or D.
However, please note that you cannot find a credit score in your credit report. To see your actual credit score, you can check whether the credit department offers free credit scores and credit reports, rather than the data that goes with it. You may need to provide personal information such as your Social Security Number. You can also purchase more detailed reports to score directly from one of the major credit bureaus or third-party services, or get a free credit score from credit card issuers such as American Express or Capital One (even if you are not the account holder for that bank).
Checking your credit score will not affect you as it is considered a soft check.
Why credit history is important
Lenders can use your credit history to help you determine the size of your loan or credit card approval and credit limits. Your credit history also affects the interest rate or cost of the loan you are eligible for.
Suppose you have never used credits or are young adults who have just started on their own, so you don’t have a limited history or have no credit history. If you apply for a Top Tier reward credit card to support you, you may be turned down due to insufficient credit history.
Meanwhile, a long credit history filled with on-time payments and responsible credit use can help you qualify for the best credit card or secure a mortgage at a favorable interest rate.
You can take a full picture of your credit history by ordering credit reports from three major stations. You are entitled to a free copy of your credit report from each of the three credit departments once a week. However, these reports do not provide scores for free, but only provide the data used to calculate the score. For your credit score, you must purchase it or get it for free from the credit card issuer and other services offered as the benefit of the customer.
Reviewing your credit report will help you better understand the financial challenges and areas that need improvement. It’s also good to make sure the information is correct. Your credit report may contain outdated or incorrect information that may inadvertently prevent you from receiving access to credit, loans, and good interest rates.
How to improve your credit history
Here are some best practices for building a credit score and establishing a strong credit history.
- Pay all your bills on timeevery time. Payment history reflects whether or not you pay your bill by the due date, making it 35% of your FICO credit score. Delayed payments, usually reported when a delinquent amount of at least 30 days, drag down the score. If your credit report records late payments as part of your credit history, but otherwise you have a history of paying on time, you can reach out to the creditor and ask them to delete them. This may have been successful, but not, but it is worth trying.
- Keep your credit card balance low. The amount accounts for 30% of your credit score compared to the total credits available to you. The less debt you carry, the more likely your score will be. Generally speaking, it’s good to use less than 30% of the available credits. If possible, try to fully repay your account before all billing cycles end. Credit usage is usually calculated once a month, so making an additional payment in the middle of the month will help you defeat it.
- Keep your oldest credit card account open. The length of your credit history, or the period you are using your credit, accounts for 15% of your credit score. A longer history is better for your score. So, closing inactive accounts may seem wise, but we recommend keeping them open as it contributes to the length of your credit history and reduces credit usage. A closed account in good condition can remain on your credit report for up to 10 years. For example, if you’re earning unnecessary fees, you can close your inactive credit card account, but consider opening it and using it occasionally.
- Please do not apply for many credit cards within a short frame. I have a new credit account for 10% of my credit score. This factor takes into account the number of new credit accounts you have recently opened, as well as the number of credit applications you have recently opened. It is best to minimize these. However, if you are purchasing large-scale loans such as mortgages or car loans, there is a “rate shopping window.”
- Maintain a diverse credit portfolio. Credit mix accounts for 10% of your credit score, including revolving debt (such as credit cards) and installment debt (such as student loans and mortgages), and accounts have different types of credit accounts you have.
- Consider becoming an authorized user with a Parent/guardian or spouse/partner Credit card. For certified users, primary card holder activity is often added to your credit report. You don’t need to use your card or add physical cards to your account, but this is a great way to build credits if you start from scratch… Assume that the primary cardholder will handle your cards responsibly.
- Use third party tools. You can also look to alternative credit building tools such as Experian Boost and Ecredable Lift. These types of services can provide credit for rent payments, streaming service subscriptions, utilities and other things that have not historically been counted in your credit score.
Conclusion
Your credit history is an important factor that tells you that you lend out your creditworthiness or the possibility that you will pay off your debts in a timely manner. This is a record of information about your credit account (such as payments) and how well you manage your credit, including negative marks for your credit (such as late or bankruptcy).
Because the credit report notifies you of your credit score, check your credit report from time to time to ensure that your information is accurate. If your credit score is not as high as you would like, engaging in good credit habits can help you build your credit score.
