Credit Report - Credit Report History - Credit History Explained

Credit history or credit report is, in many countries, a record of an individual's or a company's past borrowing and repaying habits, including information about late payments and bankruptcy. The term "credit reputation" can be used interchangeably with either credit history or to credit score. Get Equifax Score Watch Now!

When a prospective customer fills out an application for credit from a bank, store or credit card company, their information is forwarded to a credit bureau, or credit reporting agency along with updates on the status of their credit accounts, address or any other changes tha have been made since the last time they applied for credit.

This information is used by lenders such as credit card companies to determine an individual's or an entity's credit worthiness; that is, determining an individual's or entity's means and willingness to repay an indebtedness. This helps determine whether to extend any credit, and on what terms to do so. With the adoption of risk-based pricing on almost all lending in the financial services industry, this report has become even more important since it is usually the sole element by which to choose the annual percentage rate (APR).

How Credit Rating Is Determined

Credit ratings are determined differently in each country, but the factors are similar, and may include:

Payment record - a record of bills being overdue will lower the credit rating.
Control of debt - Lenders want to see that borrowers are not living beyond their means. The experts estimate that non-mortgage credit payments each month should not exceed more than 15 per cent of the borrower's after-tax income.
Signs of responsibility and stability - Lenders perceive things such as longevity in the borrower's home and job (at least two years) as signs of stability. Having a respected profession can improve a credit rating.
Re-Aging - Through re-aging, a credit history is re-written and you are given a fresh start on that particular account. This can improve the credit score. In 2000 the Federal Financial Institutions Examination Council (FFEIC) clarified guidelines on re-aging accounts for delinquent borrowers.
Credit inquiries – An inquiry is simply a notation on a credit history file. There are a few kinds of issues that may or may not have an adverse effect on the credit score. Soft pulls don't affect the credit score and are characteristic of the following examples:
A credit bureau may sell a person's contact information to an advertiser purchasing a list of people with similar characteristics, like homeowners who have excellent credit. A creditor can check a person's credit periodically or a credit counseling agency, with the client's permission, can get a client's credit report with no adverse action. Each of the preceding examples are usually referred to as a "soft" credit pull.

"Hard" credit inquiries are made by lenders. Lenders, when they are granted a permissible purpose by a borrower for the purposes of extending credit, can check his credit history. Any hard inquiries from lenders will direct affect a borrower's credit score. Keeping any credit inquiries to a minimum can help a person's credit rating. A lender may feel that many inquiries on a person's credit report as a sign that the person is actively looking for loans and will possibly consider that person a poor credit risk. Get Equifax Score Watch Now!

Why You Should Not Close Credit Card Accounts That You're Not Using

Credit cards that are not being used - Although it's believed that having too many credit cards can have an adverse effect on a credit score, closing these lines of credit will not improve your score. The standard credit rating formula looks at the difference between the amount of credit a person has and the amount that's being used, so closing one or more accounts will reduce your total available credit. And be aware that the lower the percentage of available credit, the more the credit score will drop. The credit formula also factors in the length of time credit accounts have been open, so closing an account with several years of history is another credit mistake to avoid.

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