Definition
Credit history is a record of an individual’s borrowing and repayment activity, including their use of revolving credit, such as credit cards. Credit reporting agencies compile these records into credit reports, which are used by lenders to evaluate the creditworthiness of applicants. A better credit history typically results in more favorable loan terms.
Examples
- Example 1: When the Crawfords applied for a mortgage, the lender ordered a credit report that detailed their credit history. Because the Crawfords had always been careful to pay bills on time and did not use credit excessively, their report allowed them to get a loan with favorable terms.
- Example 2: Sarah missed multiple credit card payments over two years, resulting in a poor credit history. When she applied for a car loan, the lender considered her high-risk and offered her a loan with a high-interest rate.
Frequently Asked Questions (FAQ)
Q1: What is included in a credit history?
A1: A credit history includes information on credit accounts, loans, repayment history, and any bankruptcies or legal judgments. It may also include addresses and employment history.
Q2: How long does negative information stay on my credit report?
A2: Most negative information, such as missed payments, stays on your credit report for seven years. Bankruptcies can stay up to ten years.
Q3: How can I improve my credit history?
A3: Improving your credit history involves paying bills on time, reducing debt, avoiding new credit applications, and checking your credit report regularly for errors.
Q4: What are FICO scores? A4: FICO scores are credit scores created by the Fair Isaac Corporation. They range from 300 to 850 and indicate an individual’s credit risk. A higher score suggests better credit risk.
Q5: How often should I check my credit history?
A5: It’s a good idea to check your credit history at least once a year. This can help you spot any errors or signs of identity theft early.
Related Terms
- Credit Report: A detailed report of an individual’s credit history prepared by a credit bureau.
- FICO Scores: Numerical credit scores calculated using algorithms developed by the Fair Isaac Corporation, commonly used by lenders to assess credit risk.
- Creditworthiness: The likelihood that a borrower will default on debt obligations, evaluated by lenders using credit history and credit scores.
- Mortgage: A loan obtained to purchase real estate, with the property itself serving as collateral.
- Lender: A financial institution or individual that lends money to borrowers, hoping for repayment with interest.
Online Resources
- Annual Credit Report: Official site to get free credit reports from the nationwide credit reporting agencies.
- FICO: Provides information on FICO scores and how they are calculated.
- Consumer Financial Protection Bureau (CFPB): Offers resources on understanding and managing credit.
References
- “Your Score: An Insider’s Secrets to Understanding, Controlling, and Protecting Your Credit Score” by Anthony Davenport.
- “The Total Money Makeover: A Proven Plan for Financial Fitness” by Dave Ramsey.
Suggested Books for Further Studies
- “Your Score: An Insider’s Secrets to Understanding, Controlling, and Protecting Your Credit Score” by Anthony Davenport
- “The Total Money Makeover: A Proven Plan for Financial Fitness” by Dave Ramsey
- “Credit Repair Kit For Dummies” by Steve Bucci
- “Credit Intelligence” by Larry Bailey
- “The Black Book of Credit Repair and Bankruptcy” by Nathan Harris
Real Estate Basics: Credit History Fundamentals Quiz
