The importance of credit score and credit history cannot be overstated. Your credit history not only impacts your ability to get approved for credit with favorable terms, but it can also impact your ability to find cheap insurance, rent housing and possibly even get a job.
Here’s what you need to know about your personal credit history, including what it is and what you can do to build a good one.
What Is Credit History?
Your credit history is a comprehensive view of how you manage your existing debts, as well as some of your past debts. Your credit history generally comprises your dealings with debt over the previous seven to 10 years, depending on the type of item.
For example, positive credit information, such as on-time payments, as well as one type of bankruptcy, will remain on your credit report for 10 years. However, late payments, collection accounts and many other things are remembered only for seven years.
The importance of a credit score and your credit history encompasses several areas of your financial life. As a result, it’s crucial that you take the time to understand how your credit history works, how it’s compiled and what steps you can take to improve and maintain a good credit history.
What Is a Credit Report?
A credit report is a file that lists your entire credit history. You have three credit reports, one which each of the three major credit bureaus, Experian, Equifax and TransUnion.
Your credit report lists each of your current and past credit accounts (up to 10 years after they’ve been closed), along with information about your balance, payments and more. Reading your credit report can give you an idea of whether there are issues you need to address to improve your credit.
The Differences Between Credit History and Credit Report
The primary difference between the two is that your credit history is your actual history of dealings with credit, while your credit report is simply where your credit history is kept. So when you’re reading your credit report, you’re reading information about your credit history.
This is why it’s so important to understand how to read your credit report, so you can determine if you need to make some corrections and what those are.
Why Is Credit History Important?
As previously mentioned, there are several situations in your life where someone will review your credit reports to make a decision:
- Borrowing: In an ideal world, you’d never have to borrow money through mortgages, personal loans, auto loans and the like. But the reality is that many large purchases are out of reach for the average American. Having a good credit history is important because it improves your chances of getting approved for credit at a favorable rate.
- Insurance: According to the National Association of Insurance Commissioners, 95% of auto insurers and 85% of homeowners insurers use a credit-based insurance score to help calculate your policy’s rate.
- Renting: Whether it’s an apartment, condo or townhouse, renting a place to live almost always requires credit checks. This is because the most important thing for a landlord is to ensure that you’re likely to pay your rent on time, and if you have a history of paying your debts late, it’s likelier that you’ll do the same with your rent.
- Employment: If your job involves handling money or government security clearance, you may need to undergo a credit check. This is because people with less-than-stellar credit histories may be more likely to mismanage money on the job or be financially compromised in general.
What to Do If You Have a Certain Type of Credit History?
Depending on where your credit stands right now, there are certain next steps you can take to build your history or maintain what you have.
Good Credit History
If you’ve built a good credit history, it’s crucial that you avoid the urge to be complacent. Sign up for a credit monitoring service to keep an eye on your credit score and reports, and continue to practice the good habits that got you to where you are today.
Bad Credit History
Check your credit report to get an idea of which areas you can address, then take concrete steps to resolve the issues. For example, if you have past-due balances, get caught up as quickly as possible. If your credit card balances are high relative to your credit limits, make it a priority to pay those down quickly.
Finally, if you find something you don’t recognize, you can dispute it with the credit bureaus to have it removed.
No Credit History
It can be challenging to get approved for credit when you have no history of managing debt in the past. However, here are some steps you could take, depending on your situation:
- Apply for a student credit card if you’re a college student.
- Apply for a secured credit card if you’re not a college student.
- Consider a credit builder loan.
- Ask a family member with good credit to add you as an authorized user on their credit card account.
- Ask a family member with good credit to cosign a loan application with you.
How You Can Check Your Credit History
If you’re wondering how to get a credit history report, the best place to start is AnnualCreditReport.com. You can get a free copy of your credit report from each bureau every 12 months.
For ongoing access, consider signing up for a free account with Experian, one of the three credit bureaus. Experian CreditWorks offers a free FICO score, as well as free access to your Experian credit report whenever you want to view it.
FAQs About Credit History
As you work on building your credit history, here are some other common questions that may arise.
Your credit history is found in your credit reports, and you can get free credit reports anytime you want from Experian. If you want access to your credit reports from the other credit bureaus, visit AnnualCreditReport.com to get one free copy every 12 months.
Your credit score is calculated based on information found in your credit report. According to FICO, a good credit history is when you have a credit score of 670 or above.
Lenders, insurance companies, landlords and even some employers use your credit history to make decisions about your financial life. That includes credit applications, insurance rates, lease applications and job applications.
Not all creditors report everything to all three credit bureaus. For example, when you apply for a loan or credit card, many lenders don’t run credit checks with all three credit bureaus, so you’ll only see inquiries with one or two.
Additionally, the credit bureaus sometimes store your information differently, which can impact your credit score. However, in most cases, the information is close enough that it doesn’t make much of a difference.