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Understanding Your Credit History

Updated on August 30, 2013

Your credit history defines your credit worthiness. Most people know that having a good credit rating has many financial benefits. Unfortunately few people know how to achieve a high score.

Implications of Your Credit Rating

Every consumer benefits from a good credit score. A negative credit rating can significantly reduce the chances of getting a credit card, bank loan or even insurance. It can also dramatically lower your chances of owning or renting a home. You can even be denied employment in a company that uses credit rating as one of its acceptance criteria.

What Makes Up Your Credit Score


So What is a FICO Score?

Who rates your credit worthiness? There are three consumer credit bureaus (Experian, Equifax and TransUnion) who compute your FICO (Fair Isaac Corporation) score. Each bureau has their own proprietary algorithm, which is used to create a numerical value ranging from 300 to 850 indicating your overall creditworthiness.

Your FICO score is determined by your credit history and is based on records obtained from your banks, creditors, lenders and utilities. When lenders report late payments or collection activity your FICO suffers. If you file for bankruptcy or use a debt management service, your score will likely drop. Frequent credit requests can also indicate that you may be experiencing financial distress and this can also lower your score.

Your payment history accounts for 35% of your credit score. The next major factor is debt-credit ratio at 30%. The length of time covered by a credit history makes up 15% of your score. The remaining 20% is made up by the types of credit accounts owned and hard inquiries that lenders make whenever you seek credit or loan at 10% each.

FICO Score Grades


Why Your Score is So Important

Your credit history is used by banks, creditors and lenders to evaluate their exposure for lending money or giving you more credit in the form of personal loans, mortgages and credit cards. Your FICO score is one of the primary factors used to evaluate your willingness and ability to repay debts.

Staying On Top of Your Credit Score

Do You Check Your Credit Score at Least Once a Year?

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Getting a Copy of Your Credit Report

Understanding your credit history allows you to better manage your personal finances. As mandated by the Fair Credit Reporting Act, you can have one credit history report annually for free. You can start by visiting the website. Unfortunately it won't include your FICO score.

Your free credit report lists all of your credit transactions. It contains detailed account information, including payment history, credit limits, outstanding high and low balances, and any collection effort or action taken to recover overdue debts, as well any debt management and bankruptcy cases filed.

Is Your Credit Report Accurate?

The important thing to remember whenever you check your credit report is that your objective is to ensure that the information contained therein is 100% accurate especially in the area where financial accounts and payment histories are concerned. Errors are sometimes found that can adversely impact on your credit standing. You may even uncover transactions you have never placed, or payments that remain open when you have already paid them.

If you find any of these errors, be sure to contact the credit agency that released your report. There is also a good chance that the same errors had been captured by all three agencies and you will need to contact all of them.

Final Thoughs

Given how important your credit rating is to your overall financial health it's surprising how few people actively monitor their FICO scores. It's easy to mess up your credit score - making minimum credit card payments month after month, increasing your debt to income ratio, and of course fraud in the form of identity theft are all common culprits. Monitoring your credit reports is a smart move to ensure your you maintain a good to outstanding credit rating, which is a major factor in ensuring your future financial health.


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    • Tom Schumacher profile image

      Tom Schumacher 3 years ago from Huntington Beach, CA

      Jtrader, I could not agree more. Teaching young people about the importance of money and credit management cannot be overstressed. Unfortunately, however, it seems the focus of interest of most individuals is acquiring goods, not saving hard earned income.

    • jtrader profile image

      jtrader 3 years ago

      This should be taught to kids when they are in their early teens. Thanks for sharing.

    • Frank Atanacio profile image

      Frank Atanacio 3 years ago from Shelton

      this hub is perfect for first year college students help them understand the importance of credit great hub useful too

    • Au fait profile image

      C E Clark 3 years ago from North Texas

      Good information for everyone to know. Having a credit card for emergencies can make life a lot easier.

      I discovered someone had opened a credit account in my name by examining my credit report. Whoever did it paid it off and improved my credit, but even though I tried to discover who it was that had done it, I was unable to do so. The company that issued the credit said they no longer had records on the account because it was over 2 years before. I thought they would have kept the records longer. I was trying to find out where they sent the bill which should give an indication of who had opened the account.

      It was all very strange and I am just so glad whoever it was paid the account off before closing it because that is not usually how things go when someone uses a person's identity to get a credit card.

      Tom, I want to apologize to you because it took so long to get back to you. You left me a wonderful comment and I appreciate it so much. Somehow it ended up in the 'denied' fold of comments and I didn't even know it was there. I don't deny anyone's comments as a rule and I usually don't look in that folder, but I saw your comment when I opened that article about Mr. Barfoot or I would never have known it was there. I have no idea why it was put in the denied folder or why HP put it there (who else could have done it?), but I've found it now and very much appreciate your comment and your taking the time to read my article and to write the comment.

    • Tom Schumacher profile image

      Tom Schumacher 3 years ago from Huntington Beach, CA

      Mylindaelliott, thanks for commenting and I agree with you that "many people don't understand the importance of their credit score." In fact, most people don't pay attention until something goes wrong. Personally, I check my credit history quarterly; the cost is marginal considering the peace of mind I get in return. - Tom

    • mylindaelliott profile image

      mylindaelliott 3 years ago from Louisiana

      That's good information. So many people don't understand the importance of their credit score.

    • Tom Schumacher profile image

      Tom Schumacher 3 years ago from Huntington Beach, CA

      Johnny-Tsunami, thanks for the comment and I recommend you check your credit history at least once a year. Personally, I have found errors on several occasions with my report. Discovering such discrepancies is not only concerning but time-consuming and frustrating to fix. - Tom

    • profile image

      Johnny-Tsunami 3 years ago

      I goto check my history one of these days. I'm really curious what it is.

    • Shyron E Shenko profile image

      Shyron E Shenko 4 years ago from Texas

      Thank you Tom, for the information and the following.

      The information here is helpful, but I don't think I would want to work for a company that chose employees based on their credit score. Those scores are not indictive of a person's work ethics in most cases, in my view.

      But this is a useful hub. Voted up, U/I and shared.


      P.S. Did you know Arlene Schumacher-Accamando

    • tobusiness profile image

      Jo Alexis-Hagues 4 years ago from Bedfordshire, U.K

      Interesting information, thanks for sharing.

    • Tom Schumacher profile image

      Tom Schumacher 4 years ago from Huntington Beach, CA

      Hi stuff4kids,

      Thanks and I agree that credit leveraging can be costly and a high risk if managed improperly. However, as we know it can also be an excellent vehicle for creating financial earning opportunities, not to mention, as you noted, bridging the gap when appropriate. Since you understand the benefits of interest bearing loan instruments, I recommend you visit Lending Club at This is a great approach for investors wishing to further diversify their holdings. It's easy and best of all you control the risk/return levels acceptable to you.


    • stuff4kids profile image

      Amanda Littlejohn 4 years ago

      Very interesting. I've never needed to take out credit and even if I was in very difficult circumstances I would think twice about it. Borrowed money is expensive and can be a terrible trap.

      At the same time, wisely judged and appropriately used I think it can also be a useful tool for some folks to 'bridge the gap.' The information you give here should prove very helpful to anyone considering going that route.