A guide to credit history

When credit history comes up, it probably has to do with how someone handled debt in the past and what’s going on with their finances right now. Credit history can include information about the accounts a person has open, how long they’ve been open and whether the account holder made payments on time.

But there’s plenty more to know—like how credit history makes its way into credit reports and how it affects credit scores and lending decisions. Understanding how these pieces fit together can help you better manage your credit. And this article will help explain some of the basics.

Key takeaways

  • Your credit history can influence your financial life, so taking steps to establish a positive history can help you.
  • A credit score is a number, often between 300 and 850, that reflects a person’s credit history using information about their financial habits.
  • Opening a credit card or taking out a loan are options people can use to start building their credit history.

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What is credit history?

Credit history is a record of how a person has handled money and debt, including credit card accounts and other loans.

Many people’s credit history starts with an application for a loan or a credit card, according to the Federal Trade Commission. As people use a financial product and pay their monthly balances, the lender may report details about account activity to the credit bureaus.

For example, your credit card issuer may report the date you opened a credit card, your current balance and your payment history, including any payments that you may have missed. When credit bureaus—like Equifax®, Experian® and TransUnion®—receive that information, they add it to your credit reports.

In turn, those reports are used when a company like FICO® or VantageScore® calculates your credit score. Lenders might also use those reports and scores to evaluate a loan or credit applicant’s creditworthiness.

Why is credit history important?

Your credit history goes into your credit reports and is used to calculate your credit scores. But that’s not the only place it potentially has a big financial impact. According to the Consumer Financial Protection Bureau (CFPB), your credit history may also come into play in these situations:

  • Lenders may use your credit reports to help them decide whether you qualify for a loan and to set loan terms like interest rates, credit limit and monthly payments. 
  • Insurance companies may use the information when setting your insurance rates. 
  • Landlords may review your credit when you apply for an apartment lease. 
  • Utility companies may look at your credit history when you set up an account, to decide whether a security deposit is required. 
  • Employers may also check your credit reports before they make a hiring decision.

Good credit history vs. bad credit history

When companies review your credit history, they want to find out how you’ve managed debt in the past. Making on-time payments and keeping your debt balances low are generally seen as responsible credit behaviors. These habits could help build and maintain good credit scores and a good credit history.

On the other hand, missing payments or bankruptcies may lead to a less-than-perfect credit history. Setting electronic reminders can help you remember to pay on time, and paying off your balances each month can help you keep a healthy credit utilization ratio.

What is considered a good credit history?

A good credit history involves responsibly managing debt by doing things like paying bills on time every month. And because credit history plays a part in credit reporting and scoring, it’s worth noting what credit scoring companies consider to be good scores.

For example, VantageScore says scores between 661 and 780 are good. And FICO considers a good credit score to be between 670 and 739. 

But remember that a good credit score is merely a reflection of good credit history and that decisions about loans and credit approvals are ultimately up to the lenders themselves. There are often no guarantees for approvals based on credit scores.

If your credit history currently has some blemishes, this doesn’t necessarily mean that you will have a “bad” credit history forever. Negative credit factors, such as missed payments, may disappear from your credit history up to seven years from the date of a missed payment. Using credit responsibly can help you build a positive credit history. Making on-time payments each month and keeping low balances can help you get your credit history on the right track.

How to establish credit with no credit history

The CFPB says millions of Americans are “credit invisible,” because they don’t have enough credit history to be scored. Young adults, college students and recent immigrants may fit this description. If you haven’t established credit, here are four ways to get started.

Apply for a credit card

While there are many credit cards to choose from, a lack of credit history may make it harder to qualify for traditional credit card accounts. However, there could be ways to get a credit card even if someone has no credit history.

If you’re faced with this challenge, there’s an option called a secured credit card. To open one of these accounts, you typically give the credit card issuer a security deposit upfront—it’s usually refundable once the account is closed. As you use the card and make on-time payments, you can start to build a positive credit history.

Become an authorized user

As an authorized user on another person’s account, you could get your own card and use it to make purchases. If the card issuer reports the account activity, then you could build credit as long as the account is used responsibly. Keep in mind that negative information, such as missed or late payments, may lower your credit score. Before opening the account, check with the card issuer to see how they report information for authorized users.

Take out a credit-builder loan

In addition to credit cards, there are some installment loan options that could help build credit history. Instead of receiving the money upfront like a traditional loan, money from a credit-builder loan goes into a dedicated account. As you make payments over a fixed period to match the amount of the loan, the lender reports the payments to credit agencies to help you establish credit. And once you pay off the loan, you receive the money.

Pay your rent and bills on time

There are ways to build credit history without a credit card or a loan—like making on-time rent payments. But that’s only if the payments are reported to credit bureaus. This kind of information is known as alternative data, a category that includes utility bills and rent payments. Keep in mind that negative information, such as missed payments, could affect your credit.

Credit history FAQs

Below you’ll find the answers to some frequently asked questions about credit history.

What is a good length of credit history?

Lenders may review your credit scores and reports to get a sense of your financial behavior. So you could think of credit history as a record of how you’ve managed credit in the past. 

While having experience using credit responsibly could be seen as a good thing, there is no ideal length of credit history. But as the CFPB notes, “The more experience your credit report shows with paying your loans on time, the more information there is to determine whether you are a good credit recipient.”

That said, closing an established account could lower credit history and, in turn, credit age. And opening too many accounts in a short amount of time might have a similar effect. 

Building credit history may require consistency and patience. But paying bills on time, every time, and improving your credit mix could help.

Can I rent without credit history?

Not all landlords or management companies require a credit check before they lease properties. If you don’t have much of a credit history, property managers may verify your employment. You may also be able to rent by supplying character references. You can also consider getting a co-signer, which is someone who agrees to pay if you can’t.

How do I fix mistakes on my credit report?

Monitoring credit reports and credit card statements can help you check for mistakes or fraudulent activity. If you find a strange charge on your credit card, you should report it to the credit card issuer. The company’s fraud or dispute division can usually assist with resolving fraudulent charges—if you report the activity in time. According to the Fair Credit Billing Act, you typically have to report fraudulent charges within 60 days of getting your credit card statement. 

Credit bureaus usually update information every 30 to 45 days. It’s worth monitoring your credit to make sure your information is accurate. Errors on your credit report could also indicate that you’ve been a victim of identity theft. If you suspect that someone is using your personal information, visit IdentityTheft.gov to report it.

Credit history in a nutshell

Building credit history takes time, effort and responsible use. Regularly checking your credit can help you track your progress and make sure the information in your credit history is accurate. You can also get free copies of your credit reports from each of the three major credit bureaus by visiting AnnualCreditReport.com

CreditWise from Capital One can help, too. You can access your TransUnion credit report and VantageScore 3.0 credit score as often as you like—without hurting your credit. Plus, it’s free for everyone—even if you’re not a Capital One cardholder. 

Wondering what else you can do for your financial health? Check out this guide on improving credit scores.

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