A credit history is the record of an individual’s past actions in the use and repayment of debts. Every time a consumer borrows money from a lender, or utilizes their credit cards, the ability that consumer demonstrated in repaying those borrowed monies is noted in their credit history. Lenders will look at a consumer’s credit history to determine their discipline in repaying debts. This information comes from several sources like banks, credit card companies, collections agencies, and governing bodies.
Lenders and credit card companies report actions taken by their borrowers to the three credit reporting bureaus which use this data to compile a consumer’s credit report.
Credit history makes up the credit report, which then is used by FICO to determine a credit score.
A credit history will contain data from multiple sources and will include a variety of data:
• The number of credit accounts a consumer has
• How long each account has been open
• Amounts owed
• Credit limits
• Available credit
• Information when bills are paid on time
• Information when bills have become delinquent or past due
• Recent credit inquiries
• Past bankruptcies, liens, or foreclosures
The information contained in a credit history is important because lenders will use the available information to determine not only whether they will extend a line of credit to a potential borrower, but also the maximum amount they are willing to risk.
During the loan process, the most recent events in a credit history are not the only factors lenders consider. The length of credit accounts and regular patterns gleaned from this information is also used.
Potential borrowers who have no credit history may find it difficult to get approved for a loan for lack of information within their credit history. This is most often the case with young consumers, or college students.