What Is Credit History? An Intro Guide
6 Min Read | Last updated: October 14, 2024
Credit history is the record of how you repay your credit cards, loans, and other debts. Learn what it takes to establish good credit with this intro to credit history.
At-A-Glance
- Credit history is the recorded account of your ability to repay debt.
- Lenders and creditors look at your credit history to determine your creditworthiness.
- Being credit-invisible – having no credit history – has similar implications to having “bad” credit.
Creditors need to get an idea of your financial responsibility before deciding whether to extend a lending hand. Since a signature alone won’t sufficiently satisfy their numbers-oriented need for reassurance, a record of your ability to repay and manage debt is required to assess your “creditworthiness.” That record is called your credit report, and it’s largely made up of your credit history.1,2
On one hand, you might rest assured knowing a creditor’s decision will take into consideration your financial history. On the other hand, if you’ve never opened a credit card or taken out a loan, you might find yourself “credit invisible” – a situation that can be as unfavorable as having “bad” credit.2
Let’s take a deeper dive into the concept of credit history, see why it’s important, and examine how building and maintaining a healthy credit history might give you an advantage in the eyes of potential lenders.
Definition of Credit History
Credit history is a record of one’s ability to manage the repayment of debt, such as credit cards and loans. Assuming you’ve taken out credit at some point in your life, your credit history will appear in your credit report. Credit history includes historical data about:1
- How many credit-related accounts you’ve opened, such as loans and credit cards.
- What types of accounts they are, such as installment or revolving credit.
- Payment history, which shows whether payments have historically been made on time, late, or missed.
- Outstanding balances, or how much you owe on each account.
- Account ages, or how long since the account was opened.
- Recent credit inquiries, such as a hard credit inquiry made by a lender after you apply for a loan.
- “Derogatory” or negative marks, like bankruptcies and accounts in collections.
Credit History vs Credit Report vs Credit Score
Credit history is a key component of your credit report. Everyone has three different credit reports, generated individually by the three major credit bureaus – Experian, Equifax, and TransUnion – after they collect relevant financial information from banks and lenders. In addition to credit history, credit reports usually include current and historical information on names, addresses, and employers. Lenders, employers, and sometimes landlords usually will receive a version of your credit report when they request a credit inquiry on your behalf.1
Historically, individuals have been able to request a free copy of each credit report once a year at AnnualCreditReport.com.1,3
Your credit history and credit report should not be confused with your credit score, a number based on your credit history, usually ranging from 300 to 850. Your credit scores are calculated by algorithms that analyze your credit habits, including payment history, credit utilization rate, account age, and more. Credit scores are used by lenders as a prediction of future delinquencies, can usually be checked for free at any time through your bank or credit card account, and offer a quick snapshot into your credit health. There are two main credit score providers, FICO and VantageScore – FICO generally being more commonly used by lenders.1,2
The bottom line:
Your credit history is used to determine your credit score. Both your credit history and credit score are included in your credit report.
Why Your Credit History Is Important
Potential creditors – credit card companies, mortgage lenders, student loan servicers, and the like – will use your credit history and credit score to determine whether to approve you for the desired account, loan, mortgage, or other credit product you’ve applied for. It’s also not uncommon for landlords to check your credit history before you rent an apartment.1
If you’re approved for the desired credit, your credit history can then be used to determine factors such as your interest rate, loan terms, or even an apartment security deposit. In general, creditors consider a history of on-time payments and low credit usage as indicators of trust. This trust may encourage them to offer you more favorable terms than they would offer to individuals with adverse credit history.1
Beyond that, staying on top of your credit reports and analyzing your credit history might also help you recognize fraud or identity theft. For example, it’s a good idea to regularly check your credit reports to make sure all accounts are valid and credit inquiries are justified. Alternatively, a credit freeze is considered one of the most potent preventatives against credit fraud and identity theft.1
Good Credit History vs Bad Credit History vs No Credit History
Your credit history plays a major role in your ability to obtain financing and more favorable loan terms. But what does it actually mean to have good credit history, bad credit history, or no credit history?
Good credit history usually shows that you consistently repay debt on time, maintain a low credit utilization rate, and have few hard inquiries on your credit report. A FICO score of 670 and up typically reflects “good credit history,” but the higher the better – “exceptional” credit scores of 800+ may increase your chances of being approved for new accounts, leases, and loans with better terms and interest rates.2,4
Bad credit history usually reflects missed payments, a high credit utilization rate, many hard inquiries, or adverse marks like bankruptcy or delinquencies. A FICO score under 580 typically reflects poor credit history and is read by creditors as a prediction of future delinquencies. Fortunately, bad credit history may be remedied with time and discipline – paying bills on time and reducing your credit usage without taking new credit could gradually boost your score.2
No credit history can bring complications similar to those of bad credit, even if you’re exemplary with money. The issue? Potential creditors or landlords have no way of determining how much of a liability approving you for credit would be and, therefore, they might not approve loans or lease applications. The good news is that promising new DIY credit reporting tools could help individuals establish and build credit in nontraditional ways.2
How to Establish – and Maintain – Good Credit History
Young adults or recent immigrants may find themselves in need of a loan, mortgage, or credit card – but have no credit history to prove creditworthiness. Taking out a credit-builder loan, if available, and responsibly repaying the debt might be a good way to kickstart your credit history.5 Some banks may also offer secured credit cards, which allow borrowers to back their credit with cash collateral.2,5
Additionally, the major credit bureaus are working to help credit-invisible individuals establish a credit history in nontraditional ways. Experian, for example, is launching a program designed to help people link routine expenses, like cellphone and utility payments, to their credit history.2 The credit bureaus are also beginning to pay attention to buy now, pay later arrangements. For more, check out “Can Buy Now, Pay Later Improve My Credit?”
Once credit is established, building and maintaining your ideal score requires good financial discipline – especially making on-time payments.2
The Takeaway
Your credit history is an important part of your credit report. It might make or break creditors’ decisions when you apply for new credit. Healthy financial practices result in a healthy credit history, which may boost your credit score and greatly increase the chances of being approved for loans, credit cards, and mortgages – all with potentially better interest rates and terms.
1 “Understanding Your Credit,” Federal Trade Commission
2 “Is No Credit Better than Bad Credit?,” Experian
3 “Annual Credit Report.com,” Experian, TransUnion, Equifax
4 “800 Credit Score: Is it Good or Bad?,” Experian
5 “7 Ways to Build Credit if You Have No Credit History,” Experian
Megan Doyle is a business technology writer and researcher whose work focuses on financial services and cross-cultural diversity and inclusion.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
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