Your credit history is a detailed record of how you have borrowed and repaid money over time. It plays an important role in determining not only whether you are approved for credit, but also how much it will cost you.
Learn more about how credit history works and how it can affect your financial opportunities.
Your credit history is a record of how you have managed your debts over time, including credit cards and loans.
Your complete credit history can be found in your credit reports. For each debt shown on your reports, you will find the following information:
-
Account opening date
-
Account status (for example, open, paid and closed, or canceled)
-
If you made your payment every month
-
Account balance
Over the years, I have heard many people claim that their credit history includes negative information from decades ago. But this is actually a common credit myth. The truth is that most negative information should be removed from your credit reports after seven years. However, one exception is Chapter 7 bankruptcy, which remains on your credit reports for 10 years.
Information from your credit reports is used to calculate your credit scores. You can think of your credit reports as a report card and your credit scores as your score: the more positive information you have on your reports, the higher your scores will be.
Therefore, having an extensive credit history detailed on your reports is important because it positively impacts your credit scores. In fact, it is one of the five factors used in credit score calculations and accounts for 15% of your score.
Here are some key facts to keep in mind if you hope to improve your credit as it relates to the length of your credit history:
-
The longer your credit history, the higher your credit scores can be.
-
Opening new debt accounts can shorten the average length of your credit history and cause your credit scores to drop in the short term.
-
Your credit scores consider the average age of all your debt accounts and the age of your oldest account.
-
You must have at least one debt account open for a minimum of six months before your first credit score can be built.
-
People with the highest credit scores (800 and above) have an average length of credit history of 10.5 years.
If you have no credit history, you will eventually face some financial challenges. For example, you typically won’t qualify for loans unless you turn to predatory lenders. In some cases, you may qualify for loans from reputable lenders if you apply for them with a guarantor.
You will also have credit cards declined and may have difficulty getting approved for certain jobs and rental apartments.
Read more: How long does it take to build credit from scratch?
If you have no credit or bad credit, know that it doesn’t have to stay that way forever. Consider these steps to begin establishing good credit:
If you have a loved one with good credit, ask them to add you to one or more of their credit cards as an authorized user. When they do this, your account information will appear on your credit reports and will be used to calculate your credit scores.
Look for a credit union or bank that offers secured credit cards. A secured credit card is a card that you can qualify for even if you have no credit. But you will have to make a deposit to be approved.
When you finally open a regular unsecured card, make sure it’s a card you plan to have open for the long term so it can help you build a long credit history.
Also, only make charges that you can pay within one month. By paying off your balance in full on each due date, you will avoid getting caught in a debt trap and improve your credit score in the area of ​​credit utilization.
You can view your complete credit history by obtaining your credit reports from AnnualCreditReport.com. This site allows you to access your reports from the three major credit bureaus (Experian, Equifax, and TransUnion) for free once a week.
Are credit history and credit score the same thing?
Credit history and credit scores are not the same. Your credit history, found on your credit reports, is all the information about the debt you have had over the last seven to 10 years. A credit score is a three-digit number that reflects information from your credit reports.
Your credit history, as recorded on your credit reports, includes detailed information about your debt accounts. This includes any credit cards, loans, and collection accounts you have had in the last seven to 10 years.