Credit history: What it is and why it matters

Credit history refers to how you’ve handled debt in the past and what’s going on with your finances right now. It can include information about the accounts you have open, how long these accounts have been open and whether you’ve made payments on time.

But there’s plenty more to know, including how credit history makes its way into credit reports and how it affects credit scores and lending decisions. Understanding how these pieces fit together can help you better manage your credit. So here’s a look at the basics of credit history.

What you’ll learn:

  • Credit history is a record of how you’ve managed your finances in the past. Lenders typically review this information before extending a line of credit, such as a credit card or loan.

  • Your credit history can influence your financial life, so taking steps to establish a positive history can help you and your credit scores.

  • Opening a credit card or taking out a loan are options people can use to start building their credit history. 

  • It takes time and responsible use to build a positive credit history. That means doing things like paying credit card statements on time every month.

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What is credit history?

Credit history is a record of how you’ve handled money and debt, including credit card accounts and other loans.

Your credit history typically starts with an application for a loan or a credit card, according to the Federal Trade Commission. If the application is approved, the lender may report details about account activity to the three major credit bureaus—Equifax®, Experian® and TransUnion®. This activity can include:

Example of credit history and reporting

Take a credit card account, for example. Your credit card issuer may report the date you opened a credit card, your current balance and your payment history, including any payments that you may have missed. When the credit bureaus receive that information, they add it to your credit reports.

In turn, those reports are used when a company like FICO® or VantageScore® calculates your credit score. Lenders might also use those reports and scores to evaluate applications for loans, credit cards and more.

Why is credit history important?

Having a positive credit history can lead to more-favorable interest rates when applying for a loan, which means you can keep more money in your pocket over time. This is because your credit history goes into your credit reports and is used to calculate your credit scores. 

But that’s not the only place credit history could have a financial impact. According to the Consumer Financial Protection Bureau (CFPB), your credit history may also come into play in these situations:

  • Insurance companies may use the information when setting your insurance rates. 

  • Landlords may review your credit when you apply for an apartment lease. 

  • Utility companies may look at your credit history when you set up an account in order to decide whether a security deposit is required. 

  • Some employers might check your credit reports before they make a hiring decision.

Good credit history vs. bad credit history

When companies review your credit history, they want to find out how you’ve managed debt in the past. Making on-time payments and keeping your debt balances low are generally seen as responsible credit behaviors. These habits could help build and maintain good credit scores and a good credit history.

On the other hand, missed payments or bankruptcies may lead to a less-than-perfect credit history. If your credit history currently has some blemishes, this doesn’t necessarily mean that you will have a bad credit history forever. 

Negative credit factors, such as missed payments, may disappear from your credit history up to seven years from the date of a missed payment. Using credit responsibly can help you build a positive credit history.

How to establish credit with no credit history

The CFPB says millions of Americans are “credit invisible,” because they don’t have enough credit history to be scored. If you haven’t established credit, here are four ways to get started:

1. Apply for a credit card

While there are many credit cards to choose from, a lack of credit history may make it harder to qualify for a traditional credit card account. But there could be ways to get a credit card even if you don’t have credit history.

If you’re faced with this challenge, there’s an option called a secured credit card. To open one of these accounts, you typically give the credit card issuer a refundable security deposit up front. As you use the card and make on-time payments, you can start to build a positive credit history.

2. Become an authorized user

As an authorized user on another person’s account, you could get your own card and use it to make purchases. If the card issuer reports the account activity, then you could build credit as long as the account is used responsibly. Before opening the account, check with the card issuer to see how they report information for authorized users. 

Keep in mind that negative information, such as missed or late payments, can impact both the authorized user’s and the primary account holder’s credit scores.

3. Take out a credit-builder loan

In addition to credit cards, some installment loan options could help build credit history. Instead of receiving the money up front like a traditional loan, money from a credit-builder loan goes into a dedicated account. As you make payments over a fixed period to match the amount of the loan, the lender reports the payments to the credit bureaus to help you establish credit. And once you pay off the loan, you receive the money.

4. Pay your rent and bills on time

There are ways to build credit history without a credit card or a loan—like making on-time rent payments. But that’s only if the payments are reported to the credit bureaus. This kind of information is known as alternative data, a category that includes utility bills and rent payments. Keep in mind that negative information, such as missed payments, could affect your credit.

Credit history FAQ

Below you’ll find the answers to some frequently asked questions about credit history.

You can learn more about your credit history by reviewing your credit reports. You can get free copies of your credit reports from each of the three major credit bureaus by visiting AnnualCreditReport.com

You can also check your TransUnion credit report using CreditWise from Capital One. It’s also free. And using it won’t hurt your credit scores.

The CFPB notes, “The more experience your credit report shows with paying your loans on time, the more information there is to determine whether you are a good credit recipient.”

That’s why closing an established account could lower credit history and, in turn, credit age. And opening too many accounts in a short amount of time might have a similar effect.

Not all landlords or management companies require a credit check before they lease properties. If you don’t have much of a credit history, property managers may verify your employment. You may also be able to rent by supplying character references. You can also consider getting a co-signer, who is someone who agrees to pay if you can’t.

Monitoring your credit reports and credit card statements can help you check for mistakes or fraudulent activity. Errors on a credit report could also indicate that you’ve been a victim of identity theft. If you suspect that someone is using your personal information, visit IdentityTheft.gov to report it and get a recovery plan.

If you find a strange charge on your credit card, you should report it to the credit card issuer.

Key takeaways: credit history

Building credit history takes time, effort and responsible use. Regularly checking your credit can help you track your progress and make sure the information in your credit history is accurate.

You can do this by monitoring your credit history with CreditWise. You can use it to access your TransUnion credit report and VantageScore 3.0 credit score as often as you like, without hurting your credit. Plus, it’s free for everyone—even if you’re not a Capital One cardholder.

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