Credit History Guide

What Is Credit History?

Credit history is a record of an individual's borrowing and repayment activities, showcased on their credit report. It provides lenders and other financial institutions with information about a person's creditworthiness, demonstrating their ability to manage debt and meet financial obligations. It contains details about past and current loans and lines of credit, including payment history, credit limits, and the dates accounts were opened and closed.

Key Things to Know About Credit History

• What it is: Credit history is a record of your borrowing and repayment information for the past 10+ years, taken from your credit reports.
• Why it’s important: Your credit history is used to evaluate your applications for credit, loans, apartments or even employment in some cases.
• How to establish it: Open a credit card or loan, become an authorized user on someone else’s credit card, or get rent/utility payments reported to the credit bureaus. You can easily compare the best credit cards for building credit history on WalletHub.
• How to build it: Pay credit card and loan bills on time, keep your credit utilization low, minimize new credit inquiries and monitor your progress. You can get daily credit score updates for free right here on WalletHub.

How Does Credit History Work?

Credit history is tracked by credit reporting agencies, also known as credit bureaus. These agencies gather information from various sources, including credit card companies and other lenders, to compile comprehensive credit reports for individuals. In the United States, the three major credit reporting agencies are Equifax, Experian, and TransUnion.

An individual typically starts to have credit history the first time they get a credit card, loan or line of credit, though it may take 30 to 60 days for information to show up on their credit report. However, there are ways to get credit history even before having your own credit card, such as being an authorized user on someone else’s credit card or reporting your rent payments to the credit bureaus.

Information Included in Your Credit History

• Open loans and lines of credit (credit cards, personal loans, mortgages, auto loans, student loans, etc.)
• Loans and lines of credit closed in the past 7-10 years
• Dates your accounts opened (and closed, if applicable)
• Current balances
• Payment history
• Credit limits
• Credit inquiries in the past two years
• Bankruptcies
• Accounts in collections

You can learn more about what’s included on your credit reports on WalletHub.

Why Credit History Matters

When an individual applies to borrow money, such as with a loan or credit card, lenders assess their credit history to evaluate the level of risk associated with lending them money. Lenders review one or more of the person’s credit reports, paying attention to factors such as the individual's payment history, outstanding debts, length of credit history, types of credit used, and recent credit inquiries.

Based on this information, lenders make informed decisions regarding whether to approve the application and what interest rates and credit limits to offer. This process happens not just with credit cards and personal loans but also with mortgages, student loans, auto loans and more. You may sometimes even have your credit checked when applying for a job or trying to rent an apartment.

Impact of Positive Credit History

A positive credit history reflects responsible financial behavior. It demonstrates that an individual has a track record of making timely payments, managing debts effectively, and using credit responsibly. A good credit history is advantageous as it increases the likelihood of credit card and loan approval and allows for favorable interest rates and borrowing terms.

Impact of Negative Credit History

Late or missed payments, defaulted loans, high credit utilization ratios, and frequent credit inquiries can all contribute to a poor credit history. This may result in difficulties obtaining credit, higher interest rates, limited borrowing options, and obstacles when trying to secure housing or employment.

You can learn more about why credit history is important on WalletHub.

How to Establish Credit History

• Get a credit card: One of the best ways to establish credit is to get a credit card. It will report information to the credit bureaus each month, regardless of whether you even use the card.
• Become an authorized user: If you’re under 18 years old, you can’t get your own credit card account yet. However, you can become an authorized user on someone else’s account. You will share a credit line with the primary cardholder, and information about the account will appear on your credit report each month.
• Get a credit-builder loan: A credit-builder loan works like a regular loan in reverse. A bank or credit union puts money in a savings account for you, then you make monthly payments until you have paid off that amount of money, plus interest. Finally, you get access to the savings account. The loan provider reports your payments to the credit bureaus each month, which helps you build credit.
• Get your rent or other bills reported: Some landlords report rent payments to credit bureaus, so you could ask yours to report your payment history. There are also third-party services that can report rent or utility payments for you. However, keep in mind that they may charge money for this service and it’s not guaranteed to have an impact on your credit.

You can learn more about how to establish credit on WalletHub.

Best Credit Cards to Build Credit

How to Build Credit History

Building and maintaining a positive credit history requires responsible financial management. There are a few key strategies to consider.

1. Pay bills on time: Timely payment of bills, including credit card balances and loan installments, is crucial. Late payments can negatively impact your credit history, as well as result in fees and/or higher interest rates. It’s also important to pay normal bills, like utility bills and medical bills, on time because if they are severely delinquent or in collections, they may be reported to the credit bureaus.
2. Keep credit utilization low: Aim to keep your credit card balances below 30% of your credit limit. High credit utilization can suggest financial strain and impact your credit score. The best credit utilization ratio is actually 1% to 10% of your credit limit, but even using 0% is still positive.
3. Diversify your credit mix: Having a healthy mix of credit types, including both loans and lines of credit, can positively influence your credit history. Having multiple types of accounts is beneficial as long as you can manage them and make payments on time.
4. Regularly monitor your credit reports: You are entitled to free copies of your credit reports from each credit bureau at least once per year. It’s important to review them for accuracy. If you identify any errors or discrepancies, promptly dispute them with the respective credit reporting agency. You can view your latest TransUnion credit report every day for free on WalletHub.
5. Avoid excessive credit inquiries: Be mindful of making too many credit inquiries within a short span, as it can indicate financial instability and potentially lower your credit score. For example, it’s best to wait at least six months to a year between applications for a credit card.

You can learn more about how to build credit on WalletHub. You can also get daily updates to your credit score and credit report, as well as personalized advice on how to improve, by joining WalletHub for free.  In addition, you may find our credit score simulator to be helpful for predicting how changes to your credit history will impact your credit score.