July 24th 2023.
What is Credit History?
Credit history is a record of all your credit account information, as well as how reliable you are in managing and paying off debt. It includes payment history, open and closed credit accounts, account balances, and recent hard credit inquiries. This information is all captured in a credit report.
Good Credit History
Having a good credit report can open many doors for you. You can access lower interest rates, better loan terms, higher loan amounts, and more perks and rewards. It can also help you secure better housing options, employment opportunities, and small business loans.
Bad Credit History
On the other hand, if your credit report is not in good standing, it can limit your loan options and lead to higher interest rates and fees with lower approval rates. This can have significant consequences for both your personal and business finances.
No Credit History
Some people have no credit history at all, often because they are young adults, students, or recent immigrants. These people are referred to as "credit invisible". If you have no credit, it is possible to start building it by obtaining a low-limit credit card or a small personal loan.
Measuring Credit History
Your credit history is quickly summarized in your credit score, a three-digit number usually between 300-850. The higher your credit score, the better your credit history. Generally, a credit score of 800-850 is considered exceptional, 740-799 is very good, 670-739 is good, 580-669 is fair, and 300-579 is poor.
Why is Credit History Important?
Credit history is critical when it comes to obtaining personal, consumer, auto, mortgage, or small business loans. Lenders want to see that your credit history reflects responsibility in managing debt and credit. They will look at your complete credit report, not just your credit score, to determine how reliable you are in paying back loans.
Auto insurance companies may also consider your credit when determining coverage and pricing your premium. Utility companies may look at your credit to determine if you are required to make a security deposit. Employers may even use credit history to decide if an applicant is reliable. Rental property owners also sometimes view credit reports during the application process.
What's the relationship between Credit History & Credit Scores?
Credit bureaus calculate your credit score based on the information in your credit report. The two main credit scoring models are FICO® scores and VantageScores®.
When assessing credit history, payment history is the most important factor, making up 35% of your FICO score. The debt you currently owe is the second most critical factor, making up 30%. Length of credit history (15%), credit mix (10%), and new credit (10%) are also significant factors.
How does Credit History impact Small Business Loans?
Commercial lenders consider both your personal credit score and history, as well as your business credit when underwriting business loans. Your personal credit score is even more important if you are still in the process of building business credit.
Just like with personal loans, lenders want to see a positive payment history and responsible credit management. Late payments and defaults can be major roadblocks to getting a business loan, while recent bankruptcies can lead to a denial, even if your credit score is in the eligible range.
Frequently Asked Questions
Here are some of the most common questions about credit history:
How far back does Credit History go in a Credit Report?
Negative reports stay in your credit history for up to seven years, after which they no longer affect your credit. Bankruptcies can remain on a credit report for up to ten years.
Where can I get my Credit History?
Your credit history is tracked and published by credit reporting agencies, also known as credit bureaus. The three major credit bureaus are Experian, Equifax, and TransUnion.
What is Credit History?
Your credit history is a record of all the information related to your credit accounts. This includes your payment history, open and closed credit accounts, account balances, and recent hard credit inquiries. All of this information is compiled in a credit report, which is used to measure your creditworthiness.
Good Credit History
Having a good credit history is incredibly beneficial as it can open the door to more favorable loan terms, higher loan amounts, lower interest rates, and more rewards. A positive credit report can also help you get better housing options, employment opportunities, and small business loans.
Bad Credit History
Unfortunately, having bad credit can severely limit your loan options and lead to higher interest rates and fees. Poor credit history can also make it difficult to get any type of financing, whether personal, business, or otherwise.
No Credit History
It’s also possible to have no credit history. This is common among young adults, students, and recent immigrants who don’t yet have a credit report. Individuals with no credit often start by getting a low-limit credit card or a small personal loan in order to build credit.
Measuring Credit History
Credit history is summarized with a credit score, which is usually a three-digit number between 300-850. The higher the credit score, the better your credit history. According to FICO scores, an exceptional credit score is 800-850, a very good score is 740-799, a good score is 670-739, a fair score is 580-669, and a poor score is 300-579.
Why is Credit History Important?
Credit history is incredibly important as it’s a major factor in determining whether you are approved for a loan. It also affects the loan terms you’ll get and the interest rates you’ll pay. Credit history is especially important when it comes to personal loans, consumer credit, auto loans, mortgages, and small business loans.
Credit history is also taken into consideration when applying for auto insurance, utilities, and even some jobs. Rental property owners may also look at your credit report.
What’s the relationship between Credit History & Credit Scores?
The credit bureaus use the information in your credit report to calculate your credit scores. The two main credit scoring models are FICO® scores and VantageScores®, but FICO scores are the most commonly used.
Your credit score is based on several factors, with payment history accounting for 35%, amounts owed accounting for 30%, length of credit history accounting for 15%, credit mix accounting for 10%, and new credit accounting for 10%.
How does Credit History impact Small Business Loans?
When it comes to small business loans, lenders will consider both your personal credit score and history as well as your business credit. Even if you have a good credit score, lenders may still want to look at your complete credit reports and history. They are looking to see the story your history tells, such as what types of credit you use, how often you apply for credit, and your commitment to paying your debt obligations.
Frequently Asked Questions
Here are some common questions about credit history:
Q: How far back does Credit History go in a Credit Report?
A: Negative reports stay in your credit history for up to seven years. After that, the report no longer affects your credit. Chapter 7 bankruptcy can remain on a credit report for up to 10 years.
Q: Where can I get my Credit History?
A: Your credit history is recorded in your credit reports, which are tracked and published by credit reporting agencies, also called credit bureaus. The three major credit bureaus are Experian, Equifax, and TransUnion.
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