Understanding your credit history can seem like a big mystery. The truth is, it doesn’t have to be. Your credit score is more than knowing which credit bureau to contact or your credit limit. Having good credit is key to a solid financial future and can open up a world of opportunities from buying or renting a car, getting a mortgage, benefiting from lower interest rates, or even getting a better job – in some cases. What is your financial IQ when it comes to your credit? It all starts with knowledge and the good news is, you’ve come to the right place. Let’s start with the basics.
What is A Credit History?
Your credit history is a record of your payments. In simple terms, if you pay your bills on time, you are helping your credit history. There is some grace, but making your payments when they are due, will keep you in a good place.
Consistently missing payments, or having gaps in your credit history will impact whether a potential creditor decides to do business with you. You will get a negative credit history over multiple incidents rather than just one missed payment.
Depending on what types of credit you have used in the past, your credit history may include information on:
- How many credit cards and loans you have in your name
- If you have made your payments on time or if you have been late or delinquent
- The length of time you have had credit accounts open and if they are up to date
Simply put, your credit history is a record of how you’ve used credit. This plays an important role in calculating your credit score. Potential lenders use it as a way to understand how you handle your financial obligations over time. Lenders may use the credit history information found in your credit reports to decide if they’ll approve you for loans or credit card accounts. It’s important to understand what information is included and how it’s presented.
When looking at your credit history, there are several factors you want to keep a close eye on. The important thing to remember is no single factor alone is used to calculate your credit score. Lenders and other financial institutions look at other things like income and job stability, to decide if you are financially responsible.
Your credit history and the information contained in a credit report are used to determine how likely you are to repay what you borrow or owe. Understanding your credit history means recognizing what is in it and what isn’t.
What Goes Into My Credit History?
According to the Consumer Financial Protection Bureau, factors making up a credit score include:
- Your payment history – How you’ve paid your accounts over the length of your credit
- How much do you currently owe – Experts say using less than 30-percent of your available credit is ideal. If you can manage it, aim for an even lower number
- The number and type of credit accounts you have
- Length of credit history – How long have various accounts been open?
- Your credit utilization rate – How much of your available credit you are using
- The number of new applications for credit
- Do you have bankruptcies? If so, how long ago did that happen?
- Public record and collection items – These events can be considered serious. Although dated items and issues with small amounts will count less than more recent items or those associated with larger amounts. This includes foreclosures
An updated credit history may not accurately reflect all relevant credit information related to a credit application, but it is used to show how you handle credit and shows a snapshot of your overall creditworthiness. An updated credit history also shows changes and/or additional information that may have been added to your credit record(s), or is different from information on a credit application.
Why is Credit History Important?
Your credit history is a important as you look to buy a car, rent an apartment, or even something like getting a cell phone. But it also matters to potential landlords, service providers, or employers. These days, it is becoming more common, depending on your career path, for employers to check their employees’ credit history. It may even be a part of the hiring process. Credit history and your credit score help lenders decide what interest rates you will pay or if you will receive credit at all. There are several factors that go into understanding your credit history. Once you know what is included, you can get a better handle on where you are and where you want to go.
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It’s clear credit history affects many parts of a person’s life. If you are hitting the restart button on your financial journey or are just getting started, your credit history really matters. Regardless of where you are, or what you have been through, you can get back on track. It can seem overwhelming, especially if you have had a job loss or financial setback.
Have you ever wondered why credit is so important? Watch this video for answers: Why Does Credit Matter?
Where Can You Find Your Credit History?
Understanding what is and is not in your credit report can help you as you make financial decisions for your family. It’s a good habit to check your credit history once a year. That way, you can stay on top of any improvements, changes, or areas to address proactively. It can also help reduce the risk of identity theft, which unfortunately has been on the rise.
It is your right to receive a free credit report from each of the three major credit reporting companies. The process is very easy, simply visit AnnualCreditReport.com or call (877) 322-8228. Beware of companies charging a fee for this information. It is free and available at no charge every 12 months.
Through December 2022, due to the effects of the pandemic, the three major consumer credit reporting companies have offered free weekly online credit reports. Equifax, Experian, and Transunion are offering this as a service, understanding the recent increased cyber attacks on everyday people. There are differences in the score each credit bureau may report, so make sure you carefully look at each one.
Once you receive your reports, take a look at all of the information, along with payment history, balances, and the status of each account. If you notice an error, contact the creditor and dispute any old or incorrect information.
What is a FICO Score?
You may have heard the term FICO score before, but what exactly is it and does it help as you work on understanding your credit score?
A FICO score is a number that can range between 300 and 850. So what is a “good” number for your credit score? Generally, scores between 670 to 739 are considered good. Borrowers with scores in the 580 to 669 range may face challenges when they try to secure financing or get favorable interest rates. We already talked about your credit history earlier. Lenders use it, your credit score, and other details like income, length of employment, and the types of credit you are applying for, to decide your creditworthiness. Understanding credit reporting gives you a better chance of obtaining the money you need.
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While there are other scoring entities, FICO is one of the most widely used scores lenders and credit card companies access when making decisions.
How Long Does Negative Information Stay on Your Credit Report?
Negative information on your credit report can be frustrating when you are trying to qualify for new credit, a higher credit limit, or loans. Situations can vary, depending on the type of financing. In general, negative marks can stay on your credit report for seven years.
All negative marks on your credit report are the same. Some affect your report for different periods of time.
Hard Inquiries – When applying for new credit, a financial institution may pull your credit report. This can result in a hard inquiry on your report. This isn’t a long-term issue for your credit, but it does have a minor impact – a few points. The good news is hard inquiries will only stay on your credit report for approximately two years.
If you are applying for financing and have multiple inquiries on your credit report, hard inquiries within a 45-day window will only count as one inquiry.
Late payments, past-due, and collections – Delinquencies, like late payments and accounts sent to collections, stay on your credit report for seven years. The longer a bill goes unpaid, the more impact it will have on your credit.
Foreclosure – Losing a home to foreclosure can be devastating to a family and can have lasting effects emotionally and financially. This type of negative mark on your credit can remain for seven years.
Bankruptcy – Bankruptcies can affect your credit report between seven to 10 years. How long depends on what type of bankruptcy you file.
With any financial challenge you face, consider contacting a GreenPath Financial Wellness advisor for help. Our trained professionals are ready to help, regardless of the challenge or situation. Call (800) 550-1961.
Everyone who contacts GreenPath receives a free financial counseling session. Let’s make your financial goals happen, together.
How Long Will It Take to Rebuild and Repair Your Credit? Can You Do It Fast?
Contrary to what you may see online, there are no quick fixes for credit issues. The good news is that your positive steps today can help you manage your debt for years to come.
Earlier in this article, we learned what goes in your credit history and the types of information that can positively and negatively affect your credit score. With that information, you can begin the process of rebuilding good credit.
The biggest steps to credit repair are to get a realistic picture of where you are, increase your financial IQ, take control of your spending, and then, take action.
Rebuilding your credit includes starting immediately to pay your bills on time to avoid causing even more damage to your score. Remember, your payment history is the most heavily weighted category contributing to your credit scores.
This also builds up a positive credit history to help you in the long run. Next, you want to use your current credit responsibly. Be sure to keep a low or even a zero monthly balance on your accounts, if possible.
As you work to rebuild your credit, work to use your credit responsibly – this will contribute to strengthening your score.
As mentioned earlier, if you need assistance getting a handle on your finances, it’s okay to get help. Work with a nonprofit agency like GreenPath to make sure you avoid predatory organizations. Visit our GreenPath.com for more tips, financial education, and to learn how to get connected to an advisor.
For people who need it, a Debt Management Plan can lower your interest rates and fees. It can also help you save money and pay off your debt faster.