Your credit history is essentially your credit résumé. The same way a job résumé shows your career experience, your credit history shows the details of how you’ve managed your credit accounts. To qualify for a loan or a credit card, it helps to have a good credit history.
This guide will explain the difference between credit history, credit report, and credit score. We’ll also show you how to establish or improve your credit history.
Here’s what we’re going to cover:
- What does my credit history include?
- What is a credit report?
- What is a credit score?
- Why is my credit history important?
- How do I establish a credit history?
- Tips for improving your credit history
- Oportun: Affordable personal loans, no credit history required
Key takeaways
- The same way a job résumé shows your career experience, your credit history shows how you’ve managed credit.
- Lenders look at both your credit history and your credit score when deciding whether they’ll approve you for a loan. However, the two are not the same thing.
- Building your credit history takes time. By making your loan and credit card payments on time each month and keeping your debt low, you can improve your credit history.
What does my credit history include?
Your credit history shows the details of your credit accounts and payments. It includes:
- The number of credit cards and loans you have had
- Which credit accounts are currently open
- How long you’ve had each account
- The amount you owe on each account
- Whether you’ve been late making payments
- The number of recent inquiries by lenders
What is a credit report?
When you take out a loan or get a credit card, most lenders send this information to credit reporting agencies, also known as credit bureaus. The three major credit bureaus in the United States are:
Each bureau takes this information and creates a credit report under your name. These reports identify you by:
- Name
- Date of birth
- Home address
- Phone number(s)
- Social Security number
Your credit reports show the details of your credit history. They may also include information about bankruptcies, foreclosures, liens, or financial judgments against you.
You can receive a free copy of all three credit reports once a year through Annual Credit Report.
What is a credit score?
Your credit score is a number between 300 and 850 that companies use to determine how likely you are to make payments on time. The higher the number, the better your credit score. A score of 670 or higher is considered good.
Your credit score is calculated based on your credit history, with each element making up a percentage of the score. The credit scoring method most widely used is FICO®.
FICO gives these percentages to each element of your credit history:
- 35 percent: Payment history
- 30 percent: Current debt
- 15 percent: Length of credit history
- 10 percent: New credit (recent accounts and hard inquiries)
- 10 percent: Credit mix (types of credit accounts)
This means that in the FICO score, your payment history is the most important part of your credit score.
What’s the difference between credit history, credit report, and credit score? Simply put:
Credit history: The details of your past and present credit use
Credit report: A written or digital record containing your credit history
Credit score: A three-digit number based on your credit report
Why is my credit history important?
Your credit history is important because it shows lenders how responsible you’ve been about paying off debts in the past.
Your credit history can affect many aspects of your financial life, including:
- Credit cards and loans. If your credit history shows that you make payments on time and manage credit responsibly, lenders will be more likely to approve your application.
- Interest rates. A positive credit history will often let you qualify for lower interest rates on credit cards and loans.
- Insurance premiums. Home insurance and car insurance companies also consider your credit history when setting your rates. If you have a great credit history, you may be able to get better rates and lower insurance premiums.
- Mortgages and leases. Your credit history affects your ability to buy or rent a home. If you have a positive credit history, you can usually get a larger mortgage at a lower interest rate. If you choose to rent, the landlord may also look at your credit history. Just like lenders, landlords want to feel assured they’ll be paid on time.
- Job applications. Some employers look at your credit history too. For example, if handling the company’s finances is part of a job you’re applying for, your credit history can show potential employers how well you’ve managed money in the past and how trustworthy you are.
- New business ventures. If you’d rather be your own boss, you might want to start a new business. To qualify for a business loan, it helps to have a good credit history.
As you can see, having a positive credit history makes more financial opportunities available to you.
How do I establish a credit history?
More than 100 million people in the United States have no credit history at all. If you’re one of them, don’t worry. Here are some simple ways you can start building a credit history.
Apply for a standard personal loan or a credit card
You can start by applying for a personal loan or a credit card. Keep in mind that not all lenders will approve you without a credit history. Look for lenders like Oportun who specialize in making loans to people with limited or no credit history.
Become an authorized user
Another way to establish credit is to become an authorized user on someone else’s credit account. You can do this by asking a friend or family member who has a good credit history to add your name to their account. This gives you the benefit of having that person’s credit payments included on your credit report. Being an authorized user is a great way to help build a positive credit history.
Apply for a secured credit card
If you can’t get approved for a standard credit card, you could try applying for a secured credit card instead. These credit cards require you to deposit money in a secured bank account. You can then use the credit card to make purchases. As you make your payments on time, the lender will report this to the credit bureaus, allowing you to build your credit history.
Apply for a credit builder loan
A credit builder loan works very much like a secured credit card. After you get approved, the loan amount is usually held in a bank account while you make regular payments to the lender, who deposits this money in a secured bank account for you. When the loan amount and interest have been paid in full, you get the money. Your on-time payments are reported to the credit bureaus and become part of your credit history.
Tips for improving your credit history
Maybe you already have a credit history, but it’s not as positive as you would like. How can you improve it?
Always make payments on time
Your payment history is the most important part of your credit history. Even one missed payment can hurt. To make sure you never miss a payment, it’s a good idea to:
- Create a budget and stick to it
- Set up automatic payments for your regular bills
- Put reminders on your calendar before your payments are due
Maintain low account balances
Another good habit is keeping your credit balances low. That means not charging too much money on your credit cards. Then you can stay current by making small, frequent payments on the balances throughout the month.
Don’t apply for new credit unless you need it
Every time you apply for new credit, the lender makes a hard inquiry into your credit report. This information goes into your credit history and temporarily lowers your credit score, so it’s better not to apply for new credit unless you really need it.
Oportun: Affordable personal loans, no credit history required
As you can see, your credit history is very important. If you’re trying to establish a credit history, you’ll want to apply for credit with a lender who understands your situation.
At Oportun, we make credit affordable for people with limited credit history. We’ll be happy to review your application even if you have no credit history at all.
If you’re approved, you can start building your credit history and improving your financial future. See if you prequalify with Oportun today.
Sources
Consumer Financial Protection Bureau. What is a credit report?
My FICO. What’s in my FICO® scores? com/credit-education/whats-in-your-credit-score
Experian. What is a good credit score?
Consumer Financial Protection Bureau. What’s a credit inquiry?
The information in this site, including any third-party content and opinions, is for educational purposes only and should not be relied upon as legal, tax, or financial advice or to indicate the availability or suitability of any Oportun product or service to your unique circumstances. Contact your independent financial advisor for advice on your personal situation.
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