What is credit history and how does it affect your credit score
If you’re curious about how your credit is measured and reported, it may help to learn more about your credit history and score. On a fundamental level, your credit history shows the ongoing actions you take managing your credit. Let’s look deeper into how credit history work can play a key role in your credit evaluation.
What is credit history
Credit history records your credit behavior into an ongoing record. It catalogues what you do with credit such as bill paying and account opening or closing. Several parts of your credit history constitute a picture of your overall credit habits and practices. Let’s explore them to better understand the composition of your credit portrait.
What makes up your credit history?
Your credit history may help you see the story your credit habits tell. Then you can determine how you’d like to shift the narrative going forward to improve your habits and show your strengths. These are the factors that help create your credit history:
- Payments toward a credit account provide an ongoing monitor of your credit payback behavior. This can include payments on a credit card, loan or other line of credit. Late payments on these types of accounts can reflect poorly on your overall credit history.
- Number and type of credit accounts you hold constitute your credit mix. This refers to the diversity of accounts you hold. For instance, loans, credit cards and lines of credit. It’s generally considered a positive to manage a variety of credit types.
- Age of your credit accounts can show how experienced you are with managing your loan and credit card accounts. The longer you’ve held these accounts, the more experience you have earned. That can often indicate a greater level of understanding about credit than a more inexperienced account holder might have.
- Credit utilization refers to the ratio of how much credit you are using versus the total credit you have available. Paying down your credit card balance, for example, can help improve this ratio.
- Credit inquiries for new credit can sometimes have a negative impact on your credit if they’re frequent and hard queries. These include credit card, apartment rental, utility and loan applications. You can often avoid a negative impact on your credit by spreading out these types of inquiries over periods of time. Many of them only stay on your credit report for about a year.
- Bankruptcies are legal procedures someone goes through when they can’t repay debts and are seeking some level of relief. Commonly filed as chapter 7 or 13, these two types of filings break into different repayment plans and show up on your credit for varying time periods. This features as a setback and can hamper your efforts to get new credit approval during those years when it’s showing on your credit history.
- Tax liens refer to unpaid taxes where the government has taken legal action against you to ensure that the taxes are paid. These can be detrimental to your credit history but there is a tax lien withdrawal process. This lien removal procedure includes payment of the taxes owed as well as following specific procedures with the IRS.
- Collections are credit accounts that lenders have sold off to a collections agency rather than continuing to request payment from the account holder. A collections report in your credit history can represent a setback because it may be considered an indicator of unpaid debt.
What is a credit score?
Your credit score is a three-digit numerical value that’s calculated based on your credit history. Credit scores range from 300–850 and can be categorized from poor to excellent. Your credit score represents your creditworthiness within the credit-lending industry.
How is a credit score calculated?
Credit scores are calculated from your credit history. The two main scoring companies, VantageScore® and FICO®, feed the data from your credit history into their different algorithms. Both VantageScore® and FICO® use five components from your credit history in their calculations, with payment history as the most significant factor. So, there’s a connection between how you manage your credit and the data used to calculate your credit score.
Why credit history and credit score matter
Your credit history may seem to accumulate behind the scenes, but it can still have an impact on your credit because your credit scores are calculated from that information. Credit scores also matter because they’re perceived by lenders as indicators of creditworthiness. The good news is that you have some control when it comes to your credit history. For instance, if you set up a schedule to make payments on time and as required, this may help build better credit history over time and may therefore help improve your credit score.
How can I check my credit history and score?
You can check your credit score with Chase Credit Journey®, which also includes useful features to guide and assist you in efforts to improve your credit behavior and potentially your credit score. Chase Credit Journey® also offers credit monitoring, which can provide you with ongoing insights and data to help you track your progress and stay informed.
Take control of your credit history
Credit history is the collection of actions you take regarding your credit, such as paying bills and applying for a line of credit. This data is what feeds into your credit score calculations. So, by enacting better credit habits, you can potentially impact your credit history as well as your credit score.