Credit History

What is Credit History

An individual’s credit history is a record of his / her past financial transactions about borrowing and repaying a loan and details about late payments and bankruptcy. This is also often referred to as the individual’s ‘credit reputation’.

A credit score is the individual’s creditworthiness expressed in the form of a number. Normally, the higher the number, the greater is the creditworthiness of that individual.

The companies which maintain these records are known as Credit bureaus.

The information obtained via the credit report of an individual is useful for lenders such as banks and credit cards to determine whether the individual is capable of systematically repaying the loan or credit card debt over a period of time.

When the individual applies to these lending agencies for a loan or a credit card, they forward the information to the credit bureaus. The information is then checked by these credit bureaus and they reply to these agencies with a detailed credit report of that individual.

How is your Credit Rating determined

As mentioned before, an individual acquires a good credit rating when it is seen that he / she is capable of systematically repaying his / her loans and debts. There are other factors which also add into the calculation. They are:

• If the individual has several bills which are overdue, then it will lower his / her credit rating.
• Ideally, lenders are not happy with people who live beyond their means. So when your non-mortgage credit payments are more than 15% of your income after tax, lenders begin to worry about your credit worthiness.
• There are different signs of stability which lenders are looking for. These make a lender feel that an individual is capable of systematic debt repayment. For example, if an individual has stayed in a job for more than 2 years, they feel quite comfortable about lending that individual some money. Another feel-good factor for the lender is the kind of job or profession that an individual follows. If the job has a lot of respectability and marketability, then the lender is happy.
• Every individual’s credit history is re-written during the re-aging process. This can give an individual a fresh start and can serve to increase the credit score dramatically. The re-aging process happens once every certain number of years.
• Another factor which affects the credit rating of an individual is the number of credit inquiries on his file. Every time a lender or a bank requests for details of the credit worthiness of an individual, a notation is made on that person’s credit history file. This may have an adverse effect on the person’s credit score. There are two types of notations: a soft pull and a hard pull. Soft pulls don’t affect the credit score, but hard pulls do. A soft pull is when advertisers are looking for a buyers who fit within a certain range of credit scores, or when a credit counseling company obtains a copy of the credit report. A hard pull is when lenders obtain a copy of the credit report. This may make a lender feel that the individual is looking for loans. This adversely affects the lender’s decisions to give the person a loan.
• Another thing which affects the credit score is the total amount of available credit of an individual. It is commonly believed that having too many credit cards has an adverse effect on the credit score. This may be true, but closing those credit cards won't create a good credit score either. This is because when you close the credit card, you reduce the total amount of available credit that you have. Also, one should not close credit cards which have been open for a long time (say many years) because this will adversely affect your credit score.

Can I get a Copy of My Credit Report?

Yes, one can obtain a copy of their credit report for free. There are several websites which will give you a copy of your credit report within minutes. However, you would be needed to put in some of your pertinent details to obtain the copy.