Your Personal Credit History and Credit Score Matters

Credit history and credit score are two essential factors in a person’s finances. Without credit history, an individual will have a more difficult time convincing lenders to extend him/her credit. This is because creditors often judge a borrower’s credit worthiness based on his/her credit history.

Meanwhile, credit worthiness is represented in figures through the credit score. The three major credit reporting agencies – Equifax, Experian, TransUnion, use their own credit scoring system to calculate credit scores. A higher score will surely win you quick approval from a potential creditor while a low score can prevent your application from getting approved. Aside from affecting your chances of approval, your credit score can also affect your interest rate and terms of repayment.

Why Credit History Is Important

Some people may argue that they do not need to build credit history because they have no plans of applying for the best loans or a credit card. True, you may not need to financial assistance at the moment, but you might need it any time in the future.

In fact, many consumers acquire at least one type of financing in their lifetime. For example, you may need to apply for a car loan to buy a car as soon as you graduate from college. As you become financially stable, you may consider purchasing your own home. Buying a house is a huge investment and it is very seldom for a person to pay in cash. When you’re ready to buy a house, you will surely need to apply for a mortgage loan.

With good credit history to back up your car loan or housing loan application, you can expect easy approval. More importantly, you can negotiate for a lower interest rate or more flexible terms of repayment if you have an impressive credit history.

How to Boost Your Credit Score

Keep in mind that your credit history is different from your credit score. Many retirees have a solid credit history. Nevertheless, once you stop using credit, the credit bureaus will no longer have anything to monitor so your file becomes inactive. As a result, you may have credit history but no credit score. The solution is to maintain at least one account active. For example, you can keep your credit card account active by using it regularly and paying your charges on time. By doing so, you will be able to maintain a good credit score.

The key to improving a low credit score is to understand the factors that influence your score. Under the FICO scoring system, your credit rating is based upon five factors. These are payment history (35%), credit-to-debt ratio (30%), length of credit history (15%), types of account (10%), and credit inquiries (10%).

Based on these criteria, it’s easy to see how timely submission of payment can affect your score. To keep an excellent credit standing, it is very important to pay your debts on time. Another significant factor is credit utilization. According to financial advisors, borrowers must not exceed more than 30% of their available credit to get a high credit score. The other three factors should not be overlooked as well since they also play a significant role in boosting your score.


About the Author:

Suzy Vanstrusen is a credit analyst and a writer on the website She has been providing consumers with tips and wise information about credit repair as well as helping you out more with your bad credit loans.  Copyright © 2011

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