A credit history is the record of a borrower's repayment behavior on past debts. It also lists current financial obligations and payment history.http://www.investorwords.com/1201/credit_history.html This report is used to determine an individual's credit worthiness, based on their past experiences with lines of credit. Mortgages, auto loans and credit cards are listed along with the current balances, record of late payments if any and creditors information. If a debt remains unpaid, it may also be reported and placed on a credit history as a negative account. Medical bills, utility payments and other debts may not report to an individual's credit history unless they have been unpaid. Once an account is reported negative, it may remain so on the credit report for up to 7 years.http://www.creditinfocenter.com/creditreports/cr_time.shtml
Credit history is also used to determine the borrower's credit score. Financial institutions often utilize the FICO (Fair Isaac Corporation) score to determine whether or not the individual will be extended credit. This score provides a snapshot of the borrower's past credit behavior.http://money.howstuffworks.com/personal-finance/debt-management/credit-score1.htm
Credit History Determines Credit Score
A credit score is a number between 300 and 850 that is calculated using an individual's credit history. This score is compiled using specific pieces of information that account for a certain percentage of the overall score. http://money.howstuffworks.com/personal-finance/debt-management/credit-score1.htm
- Payment History - this makes up 35 percent of the overall credit score. This includes past account payment history as well as current and outstanding debts. Included in this category are any debts that have been transferred to a collection agency or that have been paid late and reported as such.
- Outstanding Debt - is the amount of debt that is currently owed. Also included is the balance to credit limit ratio which is advised to be approximately 25 percent. This accounts for 30 percent of the overall credit score.
- Length of Credit - this is the amount of time accounts have been established and the length of time a credit history has been established. This number will provide 15 percent of the credit score.
- New Credit - as 10 percent of the overall score, having an excessive amount of inquiries can damage the overall score.
- Types of Credit - this remaining 10 percent is calculated based on what types of credit exist. This includes revolving credit, installment loans and other forms of credit.
America's Credit History
The history of credit cards is examined and the video clip illustrates how credit cards came to be. In the beginning, most lines of credit were store specific and only carried a 1 percent interest. This was to gain customer loyalty rather than profit from service charges. According to this report, the average American family has $11,000 in credit card debt.
Disclaimer
The content in this page is not a substitute for professional financial advice. Please contact a finance professional before using the information presented here.
References
Fast Facts
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Fair Credit Reporting Act
Provides a free credit report from the 3 major bureaus every 12 months through annualcreditreport.com
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Oldest Credit Bureau
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Length of time reported
Most negative accounts can remain for 7 years, bankruptcy can remain for 10 years
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Interest rates
Credit score can greatly influence the interest rate assigned to a loan
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Credit history inquiries
Can be made for housing, employment, securing a new loan or applying for lines of credit
