Your credit history refers to your financial record, which lenders of all loans in the USA will check as part of the application process when you apply for any loans, be they payday loans, emergency loans, installment loans or any other type of credit, finance or loan option.
Your credit record, sometimes referred to as your ‘credit history,’ includes previous loans, credit cards, mortgages, and any other financial products that you have used. You may be wondering if you have a credit history and credit score and why these matter.
What Is a Credit History?
If you have ever used a credit card or taken a loan from a bank or even had any form of financial credit arrangement for anything, then you will have a credit history.
Every time you use or apply for a credit product, such as a loan or credit card, this information is collected to form your credit history. Your credit history includes how much you have borrowed and whether or not you met repayments on time.
Information about how you pay your bills is also tracked, such as your phone bill. All of this information forms your credit history. One of the main reasons this is important is because lenders are able to see these details and are able to see how often you need credit, whether you repaid on time and if there are any loan defaults or even declarations of bankruptcy (find out more about bankruptcy here).
How Does My Credit History Affect My Credit Score?
Your credit history is taken into account when calculating your credit score. The score is a number that indicates your ‘creditworthiness,’ or how likely it is that you will be able to get accepted for a short term loan or any form of finance in the USA.
The rating represents how suitable a person is to receive credit, a loan or financial arrangement and how likely they are to pay back their debts based on their credit history and behavior as well as current financial status. If you have a poor credit history of unpaid loans and many credit cards, your credit score will be low. Banks, credit card companies, and other lenders use your credit history and scores to decide who to offer credit to.
For people who do not have good credit scores, often, bad credit loans, payday loans online and other alternative loans are required should they need to borrow money for any reason.
How Is a Credit Score Calculated?
Your repayment history when it comes to any loans and financial arrangements matters because it is the most important factor in your credit score and for lenders to form a picture about any borrower.
Your credit score is calculated based on the history of how you have or have not paid your debts; whether you have paid bills on time, how much credit you currently have and other financial circumstances that can help determine creditworthiness and affordability.
You can break down these factors into four main components:
- Payment History: Whether you have met previous credit payments on time
- Debt: If you have any outstanding debts on credit cards or loans
- Credit History: How long you have had credit products for
- New Credit: How frequently you apply for new credit products and accounts
These factors are consolidated into a three-digit number, ranging from 300 to 850. This number represents both your financial history and your current circumstances. All existing loans, credit cards, mortgages, start dates, and loan amounts are included in calculating your credit score.
Your score is greatly affected any history of missed repayments or debt, including bankruptcy. It may also take into account previous inquiry searches and request footprints.
What Is a Good Credit Score?
Credit scores range from 300 to 850 and generally, a credit score of 700 or above is considered a ‘good’ credit score. In the United States, the average score is between 600 and 750.
If you have a good credit score, this indicates that you have a stronger financial history and will be a reliable borrower. Overall, the higher the score, the more confidence lenders will have in giving you credit as they will be more likely according to the credit score to be repaid on time.
Generally, having a more extended credit history is better for your credit score because there is more evidence of your reliability.
What Is a Bad Credit Score?
A bad credit score is a score of 580 or lower.
Bad credit scores indicate that borrowers have a financial history involving unpaid bills, late payments, or debt. For example, it may be the case that someone with poor credit has had to ask for a loan roll over, whereas a similar person with a better credit score has not.
Consumers with a shorter credit history also tend to have a lower score. This is because there is not much evidence to demonstrate creditworthiness and credit reliability to lenders. Therefore, people with shorter credit histories are considered riskier borrowers than those who have had credit for many years.
Can I Improve My Credit Score?
For some people, improving their credit score in any way can be the difference between being accepted and rejected for a loan or finance. There are specific credit repair loan options available too, which are designed to help people improve their credit scores through positive borrowing practices.
One way in which to improve your credit score is to borrow money and to repay it early or on time, which will demonstrate to lenders that you are a viable and a good lending prospect.
For example, you may decide to take out a small payday loan such as a $100 loan which you will then repay straight away. Although this is not guaranteed to improve your credit score, there will be a record on your credit file that you have borrowed an amount of money and repaid it early on time, which is a positive sign for lenders and credit providers.
Why Is My Credit History Important?
Your credit history is critical because it can affect your future credit options and because it is the measurement used by lenders and credit providers to form a picture of you and to decide whether or not to lend you money or provide credit or finance. This will apply whether you need a $600 loan, need a mortgage or even just need to apply for a new credit card.
Lenders use your credit score when performing a credit check after you enquire about a loan of any kind, be it a cash advance loan or a payday loan online. Poor credit history can make it more challenging to get a mortgage for a house, be accepted for payday loans, short-term loans, or credit cards.
A credit check is an essential part of the loan request process because it helps the lender work decide whether you will be able to afford the loan repayments.
While a bad credit score can make it more difficult to obtain a credit card or a loan, this does not mean that you will always be denied. Some lenders have specific bad credit loans to make it easier for this borrower profile to obtain a loan and many lenders in the USA will consider applications for loans and credit from those with less-than-perfect credit scores and credit histories.
Will I Receive a Credit Check?
You will receive a credit check when you submit a form for any loan. The credit check is an automatic process, and you will not need to provide the information to the lender. When applying for loans online, you may receive an instant decision on your loan and this in part will be decided through checking your credit score and credit history to make a lending decision.
A lender will ask your permission before accessing your financial information to decide whether you can afford a loan. Lenders will also be able to see your full name, date of birth, and electoral roll information, confirming your current and previous addresses.
Therefore, if you are on the electoral register and have a good history at one address, it may positively impact your credit score and history as well as your chances of being accepted for nay loan or credit option.
How Can I Check My Credit History?
Your credit history will be evident in your credit rating. There are free online services available to help you find out your credit score. Keeping track of your credit history is good practice and can help you stay financially responsible. Remember that checking your credit score will never impact your credit report.