What is credit history?
Credit history is the record of how you’ve managed debt over the last seven to 10 years. Your credit history includes your activity with credit cards, loans and any collection debts you’ve had during that period.
When a creditor reports your debt activities to a credit bureau—such as Experian, Equifax or TransUnion—the activity appears in your credit report. The information is also used to generate your credit scores. The more positive your credit history, the higher your scores will be.
Elements of credit history
Your credit history includes details about the money you borrowed and whether you paid it back on time. Here are the main elements of your credit history and a breakdown of how each element impacts your FICO credit scores:
- 35% payment history: Whether or not you make debt payments on time.
- 30% credit utilization: How much of your available credit you use (the less, the better).
- 15% length of credit history: Average age of your debt accounts (older is better) and whether or not they’re active.
- 10% hard inquiries: Applications for new loans or credit.
- 10% credit mix: Whether or not you’re managing different types of debt, such as a mortgage, auto loan or credit card.
Why credit history matters
Credit history directly affects your ability to qualify for loans, credit cards, insurance, and certain jobs. The better your credit history, the more likely you are to qualify.
Positive credit history also helps you obtain better terms — including lower interest rates — on loans and credit cards, which can make your monthly payments lower and drastically reduce the cost of borrowing money.
Common misconceptions about credit history
Most of us didn’t learn anything about credit in school, so we have big misconceptions about managing credit. Here are some common myths that might be damaging your credit history:
Myth: Closing credit accounts improves credit history
Closing a credit card account can actually hurt your credit profile and cause a drop in your credit scores since it reduces your available credit.
Myth: Pulling your credit reports negatively affects your score
Pulling your credit reports doesn’t have any impact on your scores. In fact, it’s an essential habit for maintaining good credit.
Myth: Some information stays on your credit reports forever
Most information remains on your credit reports for seven years, but Chapter 7 bankruptcy stays on for 10 years after the bankruptcy is completed.
Myth: Utility bills and medical bills are part of your credit history
Utilities and medical bills are not reported to the credit bureaus since they are not debt. However, if they become delinquent and are sent to collections, they can be reported and damage your credit. It’s worth noting that recent changes have made a difference. Most paid medical collection debt is now removed from credit reports, and unpaid medical bills under $500 are generally not included. Additionally, medical bills must be at least a year old before they can be reported to credit bureaus.
Myth: You can have accurate, negative information removed from your reports
If you find an error on one of your credit reports, you can file a free dispute with the credit bureau to have it removed. But if the information is accurate, it will stay on your reports.