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What is Credit History?

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Len Penzo
What is Credit History?

Credit history is a record that makes up a large and fundamental part of your credit reports.

This history centers on your debt payments, letting you and others know exactly what has been paid back, when, and how.

The purpose of this history is to help relevant parties gain perspective, so financial transactions and repayments can be better addressed in the future.

Credit History Definition

We can define credit history as a record that covers the more important information about how you have managed your finances.

This is then inserted within a greater credit report.

A credit history check involves the following:

  • A history of payments, including negative marks and on-time bills paid.
  • The quantity which is owed on each account.
  • The total number of accounts you’ve opened and closed.
  • What types of accounts you have/had.

How Credit History Works

Credit history works by running in tandem with major banking and lending operations.

While the likes of your bank and credit card lender will maintain this information themselves, they also turn to credit bureaus to collate all the necessary information.

This information is stored in secure records, where it’s only able to be retrieved when requested by an authorized user.

Commonly, this occurs when somebody needs to check your credit score or allow you to take out a professional or personal loan.

On these occasions, credit history allows another party to access a history of your finances so that they can determine the likely risk if they choose to do business with you.

Once a business or lender understands your personal history, they can ensure that both parties have as safe a deal as possible, which can be much more conducive to positive eventual outcomes.

No Credit History

So, what’s a credit history for those without a history of credit? This a question that is commonly asked by those only just making their way into the market, such as college-age young adults.

In this case, larger lenders or landlords might be hesitant to do business, as they have no credit history on which to rely.

In these cases, it can be best for newcomers to the financial world to make efforts to build credit. Small personal loans are a popular choice in this regard, as are credit cards.

Even if strictly unnecessary, using these avenues and paying back debt quickly can help illustrate your commitment to good credit.

Credit history vs credit report

Credit history makes up the majority of your credit report, but it is not the only significant aspect covered.

The larger reports also include a degree of extra information that might illuminate other important patterns, give greater context to your payments, and/or otherwise cover basic personal information.

Typically, this extra information includes your addresses, current and former, and different recorded employers.

Within the US, these credit reports are generated by three major bureaus, Equifax, Experian, and TransUnion.

You can freely obtain one copy of your credit report each year, so you can check your credit history, potential inaccuracies regarding your personal details, and help protect against fraud.

Why credit history is important

Credit history is important because it helps protect against financial fraud and avoidable loss. Before the times of reliable credit history, it was easily possible for hucksters to trick credit organizations.

This made many of them lose money or even close down. In turn, this made actual financial help for trustworthy people all the more difficult.

Therefore, credit history is how we address and combat this issue.

Bottom line

What uses your credit history to determine your credit score and why is this important? It all ties into your credit report.

As an aspect of your credit report, your credit history shows how you’ve performed in the past, and gives some indication of how you’ll likely perform in the future.

In some cases, this can help protect credit organizations from fraud. In other instances, it can help them better organize lending or repayment methods.

Taken all together, this creates a much healthier financial system, though it can be necessary for newcomers to get a bit tricky in taking their first steps.